The Kraft Heinz Company was formed in 2015 with the merger of Kraft Foods and H. J. Heinz Corporation. The company reported the following rounded amounts for the year ended January 3, 2016 (all amounts in millions): Debits Credits Accounts Receivable $900 Allowance for Doubtful Accounts $ 30 Sales (assume all on credit)On February 4, the company collected $20,000 of accounts receivable 18,300 Page 383 Required: Assume Kraft Heinz uses ½ of 1 percent of sales to estimate its Bad Debt Expense for the year. Prepare the adjusting journal entry required for the year (rounded to the nearest million), assuming no Bad Debt Expense has been recorded yet. Assume instead Kraft Heinz uses the aging of accounts receivable method and estimates that $80 of its Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at January 3, 2016, for recording Bad Debt Expense. Repeat requirement 2, except this time assume the unadjusted balance in Kraft Heinz’s Allowance for Doubtful Accounts at January 3, 2016, was a debit balance of $20.
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.
The Kraft Heinz Company was formed in 2015 with the merger of Kraft Foods and H. J. Heinz Corporation. The company reported the following rounded amounts for the year ended January 3, 2016 (all amounts in millions):
| Debits | Credits | |
| $900 | ||
| Allowance for Doubtful Accounts | $ 30 | |
| Sales (assume all on credit)On February 4, the company collected $20,000 of accounts receivable | 18,300 |
Page 383
Required:
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Assume Kraft Heinz uses ½ of 1 percent of sales to estimate its
Bad Debt Expense for the year. Prepare theadjusting journal entry required for the year (rounded to the nearest million), assuming no Bad Debt Expense has been recorded yet. -
Assume instead Kraft Heinz uses the aging of accounts receivable method and estimates that $80 of its Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at January 3, 2016, for recording Bad Debt Expense.
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Repeat requirement 2, except this time assume the unadjusted balance in Kraft Heinz’s Allowance for Doubtful Accounts at January 3, 2016, was a debit balance of $20.
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If one of Kraft Heinz’s customers declared bankruptcy, what journal entry would be used to write off its $15 balance?
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