The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2018, theallowance account had a credit balance of $75,000. Credit sales for 2018 totaled $2,400,000 and the year-endaccounts receivable balance was $490,000. During this year, $73,000 in receivables were determined to be uncollectible. Manda Panda anticipates that 3% of all credit sales will ultimately become uncollectible. The fiscal yearends on December 31.Required:1. Does this situation describe a loss contingency? Explain.2. What is the bad debt expense that Manda Panda should report in its 2018 income statement?3. Prepare the appropriate journal entry to record the contingency.4. What is the net accounts receivable value Manda Panda should report in its 2018 balance sheet?
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 Manda Panda Company uses the allowance method to account for
allowance account had a credit balance of $75,000. Credit sales for 2018 totaled $2,400,000 and the year-end
ends on December 31.
Required:
1. Does this situation describe a loss contingency? Explain.
2. What is the bad debt expense that Manda Panda should report in its 2018 income statement?
3. Prepare the appropriate journal entry to record the contingency.
4. What is the net accounts receivable value Manda Panda should report in its 2018
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