The Accounts Receivable balance for River Corporation is $429,000 as of January 31, 2020. Before calculating and recording January 2020 Bad Debt Expense, the Allowance for Doubtful Accounts has a credit balance of $2,000. Credit sales for January 2020 are $3,900,000, and over the past several years, 1% of credit sales have proven uncollectible. An aging of River Corporation’s Accounts Receivable results in a $39,050 estimate for the Allowance for Doubtful Accounts as of January 31, 2020. **Part B: Analysis of Receivables Method**Assume that River Corporation instead uses the analysis of receivables method to estimate future uncollectible accounts.a. What adjusting entry does River make to record January 2020 Bad Debt Expense?[__________] [__________][__________] [__________]b. What is the “Accounts Receivable, net” on River’s January 31, 2020 Balance Sheet?[_________________]c. What is “Bad Debt Expense” on River’s January 2020 Income Statement?[_________________]

Bad Debt Expense: Bad debts are accounts receivable that a company does not expect to collect and have written off to the income statement as an expense. Recognition of bad debt expense also results in a corresponding decrease in the accounts receivable balance on the balance sheet because irrecoverable debts are no longer an asset. There are two methods of accounting for bad debt expense. a. Direct Write-off Method b. Allowance for Doubtful Accounts Method a. Direct Write-off Method: In this method, the total amount of doubtful debts are directly written off from the accounts receivable account. The journal entry for recording the bad debt expense is debt bad debt expense account and credit Accounts Receivable account. b. Allowance for Doubtful Method: In this method, doubtful debts are estimated and the bad debts are recognized before the debts actually become uncollectable. This method is in line with the matching principle where the expense is charged in the same accounting period where is earned. Under this method, we provide an adjusting entry at the end of the accounting period by debiting the bad debt expense account and crediting a provision account called the Allowance for Doubtful Account. Based on this information, let us record the adjusting entry to record the bad debt expense for the month ended January 2020. Subquestion 1: Adjusting Entry to record the Bad Debt Expense. As per the information given, the corporation follows The Allowance for Doubtful Method for accounting for the bad debt expense. Therefore, as per the discussion, the adjusting entry for recording the bad debt expense in the books of R Corporation is as under: Subquestion 2: Calculation of the balance of Accounts Receivable-Net value as of January 31, 2020. Net Accounts Receivable is nothing but the amount that arrived after deducting the provision account, Allowance for Doubtful Account from the Gross Accounts Receivable Amount. In the given problem, the Accounts Receivable is given as $429,000 from this we will deduct the allowance for doubtful account. The allowance for the doubtful account for the current month is given as $39,050, also we are provided an opening balance of $2,000. Therefore, the total amount of Allowance for Doubtful Account is $41,050 ($2,000 + $39,050). Calculation: Therefore, Accounts Receivable, Net is $470,050. Subquestion 3: Bad Debt Expense Amount on the Income Statement. As we have recorded the journal entry, the amount debited to the bad debt expense account was $39,050 for the month of January 2020 is $39,050. Therefore, the Bad Debt Expense amount on the Income Statement is $39,050.

Business

Accounting

Part B: ANALYSIS OF RECEIVABLES METHOD Assume that River Corporation instead uses the analysis of receivables method to estimate future uncollectible accounts. a. What adjusting entry does River make to record January 2020 Bad Debt Expense? b. What is the "Accounts Receivable, net" on River's January 31, 2020 Balance Sheet? c. What is "Bad Debt Expense" on River's January 2020 Income Statement?

Part B: ANALYSIS OF RECEIVABLES METHOD Assume that River Corporation instead uses the analysis of receivables method to estimate future uncollectible accounts. a. What adjusting entry does River make to record January 2020 Bad Debt Expense? b. What is the "Accounts Receivable, net" on River's January 31, 2020 Balance Sheet? c. What is "Bad Debt Expense" on River's January 2020 Income Statement?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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