Unadjusted Trial Balance
Sales $600,000
Ending Accounts Receivable 180,000
Ending Allowance for Uncollectibles 6,200 CR
Bad Debt Expense 5,000
Estimated Uncollectibles 4%

If they use the sales revenue approach for estimating bad debt expense, after the proper adjustment to the accounts are recorded, the Allowance for Uncollectibles account should show a balance of ________________.
a)6,200 b)7,200 c)11,200 d)25,200


If they use the gross accounts receivable approach for estimating bad debt expense, after the proper adjustment to the accounts is recorded, the Allowance for Uncollectibles account should show a balance of ___________.
a)6,200 b)7,200 c)11,200 d)25,200


I would love some help with these problems if at all possible. Thanks.

tlong

I had this same question as well and I think its:
1) 11,200 and 2) 7,200.

Someone answered me with the above and its what I have been coming up with too so hopefully its correct.


Hope this helps!

morgaine300

I saw the other posting of this and had doubts about it. The problem is being presented in a very strange way. For instance, bad debt expense is part of the adjusting entry, but it doesn't say whether that number is being used for the entry using the percent of sales method or the analysis of receivables method. The only way to come up with 7200 for (2) is by assuming that is the expense amount you're to be using for the analysis of receivables method, and I'm not sure where that assumption is coming from.

Also, the balance in the allowance account doesn't specifically say if it's before or after the adjusting entry. Normally, it would be the balance before the entry, but the problem is so strange, I don't trust it.

As for the 4% -- I originally assumed this would be the percent used for the percent of sales method. i.e. 600,000 x 4% = 24,000, plus the 6200 credit already in the account is 30,200. Which isn't a choice. OK, that's out. Since it's called "percent of sales" it's pretty logical for the percent to be used for that method. But apparently not.

Or is it 4% of the accounts receivable, for the analysis of receivables method? Well, first, it doesn't say, so how is one to know. But if that were the case, then 7200 is uncollectible. In the analysis of receivables method, the amount that is "uncollectible" is always the ending balance of the allowance account. That could account for (2) being 7200. But my first paragraph could also account for it being 7200!

If that is the case, then the 5000 "expense" has to be meant for the percent of sales method. Plus the 6200 balance equals 11,200. Which would acocunt for (1). Except that using analysis of receivables, you'll still have that expense account. So that would be an odd way to present the information.

But those are really strange numbers to be using when the company already has 6200 in the allowance account and the problem is not at all explicit about what of these numbers are what.

I can "force" these answers, but only cause you say that's what they are. The book's pretty lousy, and the questions are very book-dependent, meaning it's going by some very explicit step-by-step way of doing these, calling things what they like, and no one outside of that book would know what they were talking about. And I've seen a variety of books in my time.

tlong

I agree with you totally because I did all of the above you mentioned. The book gives you the basic but it does not exactly show a case scenario where you dont have a given % of revenue. All the book problems gives a % for both.

The 4% is a percent of receivables (receivables approach) which means 4% of 180,000 = 7,200 and if you add the allowance balance of 6,200 it would be 13,400 which is not an answer choice. Thats how the book teaches you.

I also like you assumed the 4% of sales but then what I did was I subtracted the 5,000 bad debt from the 6,2000 (allowances acct.) and got 1,200 then I added the 24,000 (600,000 x4%) to that and got 25,200 which is an answer choice. But then it was not clear that I should use the 4% for the sales approach. The receivables yes because it says so.

The reason I did the subtraction is because whatever is in the bad debt expense is also a credit to allowances account so I figured maybe the 5,000 is already included in the 6,200. And maybe the allowance account already had a balance of 1,200 before that.

Then another idea was since they did not give a % of sales (revenue approach) I figured maybe just add the 6,200 and the 5,000 = 11,200 which is also an answer choice. That would have been my final answer. If not 25,200 as I did above.

For the second question I did the 4% of receivables and came up with the 7,200 but according to the book you have to add the balance of the allowance account which would not make sense here because 7,200 plus 6,200 is 13,400, not an answer choice. So I stuck with 7,200.

Its kind of like process of elimination here so even though Im not 100% sure I will go with either 25,200 or 11,200. And for #2 I would go with 7,200.

Hopefully we get more answers from someone else to confirm all of the above.

Thanks guys.