At the end of the current year, Accounts Receivable has a balance of $90,000; Allowance for Doubtful Accounts has a credit balance of $850; and sales for the year total $300,000. Bad debt expense is estimated at 2.5% of sales.

a. Determine the amount of the adjusting entry for uncollectible accounts.
b. Determine the adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense.

Adjusted Balance
Accounts Receivable $
Allowance for Doubtful Accounts
Bad Debt Expense

c. Determine the net realizable value of accounts receivable.

$

a. $7,500

b. Accounts receivable = $90,000

Allowance for Doubtful Accounts = $8,350

Bad debt expense = $7,500

c. Net realizable value of accounts receivable =  $81,650

Explanation:

a. Computation of uncollectible accounts is shown below:-

= Total sales × Bad debt expense percentage

= $300,000 × 2.5%

= $7,500

b. Computation of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt Expense

Accounts receivable = $90,000

Allowance for Doubtful Accounts = Credit balance + Uncollectible accounts

= $850 + $7,500

= $8,350

Bad debt expense = $7,500

c. Net realizable value of accounts receivable = Accounts Receivable - Allowance for Doubtful Accounts

= $90,000 - $8,350

= $81,650

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