# What was the journal entry needed to bring the

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What was the journal entry needed to bring the Allowance for Doubtful Debts to the required level after writing off the debt of Wriggler?Answer Selected Answer: Dr Bad Debts Expense..........\$3000 Cr Allowance for Doubtful Debts..........\$3000 Correct Answer: Dr Bad Debts Expense ..........\$2875 Cr Allowance for Doubtful Debts..........\$2875 Response Feedback: One way companies derive an estimate for the value of bad debts under the indirect method is to calculate bad debts as a percentage of the accounts receivable balance. Our first step in answering this question is to determine at what level the allowance for doubtful debts should stand at. But before we do so, we must first factor in Wriggler’s irrecoverable amount. We know that under the indirect method once an amount is deemed uncollectible we simply reduce accounts receivable and allowance for bad debt by equal amounts; a debit to allowance for doubtful debts, the contra-asset account, and a credit to accounts receivable account. Currently, Allowance for Doubtful Debt has a balance of \$4,000. Thus, when we factor in wriggler’s \$2,500 irrecoverable amount, the new balance is \$1,500, and net accounts receivable is \$87,500. Now we’re ready to determine what level the Allowance for doubtful debt should stand at. 5% of \$87,500 is equal to \$4,375. Thus, in order for the Allowance for Doubtful Debt account to stand at, or equal, \$4,375, we need to increase