ed Hat, Inc., is a software development company that recently reported the following amounts in its unadjusted trial balance as of February 29, 2016. Debits Credits Accounts Receivable $ 26,191,000 Allowance for Doubtful Accounts $ 943,000 Sales and Service Revenue 153,812,000 Required: Assume Red Hat uses 3/4 of 1 percent of revenue to estimate its bad debt expense for the year. Prepare the adjusting journal entry required at February 29 for recording Bad Debt Expense. Assume instead that Red Hat uses the aging of accounts receivable method and estimates that $989,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense. TIP: The aging of accounts receivable method focuses on calculating what the adjusted Allowance for Doubtful Accounts balance should be. You need to consider the existing balance when determining the adjustment. Assume that the unadjusted balance in Red Hat's Allowance for Doubtful Accounts at February 29 was a debit balance of $2,950,000. Red Hat uses the aging of accounts receivable method and estimates that $943,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense. If one of Red Hat’s customers declared bankruptcy, what journal entry would be used to write off its $11,000,000 balance?
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
ed Hat, Inc., is a software development company that recently reported the following amounts in its unadjusted
| Debits | Credits | ||||||
| $ | 26,191,000 | ||||||
| Allowance for Doubtful Accounts | $ | 943,000 | |||||
| Sales and Service Revenue | 153,812,000 | ||||||
Required:
-
Assume Red Hat uses 3/4 of 1 percent of revenue to estimate its
bad debt expense for the year. Prepare theadjusting journal entry required at February 29 for recording Bad Debt Expense. -
Assume instead that Red Hat uses the aging of accounts receivable method and estimates that $989,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense. TIP: The aging of accounts receivable method focuses on calculating what the adjusted Allowance for Doubtful Accounts balance should be. You need to consider the existing balance when determining the adjustment.
-
Assume that the unadjusted balance in Red Hat's Allowance for Doubtful Accounts at February 29 was a debit balance of $2,950,000. Red Hat uses the aging of accounts receivable method and estimates that $943,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense.
-
If one of Red Hat’s customers declared bankruptcy, what journal entry would be used to write off its $11,000,000 balance?
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