QUESTION 3

1. For journal entries in this assignment, enter AR for Accounts Receivable, ADA for Allowance for Doubtful Accounts, BDE for Bad Debt Expense, REV for Sales Revenue, and CASH for Cash. Please be careful as you type, because Blackboard is not forgiving!

   At the end of the current period, the accounting ledger of Blue Spruce Corp. shows an Accounts Receivable balance of $82,500 and Credit Sales of $762,240. The company has not yet recognized bad debt expense for the period.

   Assume the Allowance for Doubtful Accounts has a credit balance of $1,080 in the trial balance, and that uncollectible accounts are expected to be 9% of gross Accounts receivable. Hint: this means the company will first determine the desired ending balance of the Allowance and then "back into" the required amount of bad debt expense.

   1. Show the adjusting entry at the end of the period to recognize bad debt expense.
      • Debit:
      • Credit:
   2. What is the amount of net accounts receivable after recording the entry above?

   Now assume (instead of the scenario above) that the Allowance for Doubtful Accounts has a debit balance of $480 in the trial balance, and that uncollectible accounts are expected to be 7% of gross Accounts receivable. (Note: A debit balance in the allowance occurs when write-offs in a period exceed the opening credit balance of the allowance. After we recognize bad debt expense, the allowance will once again have a credit balance, as is appropriate for a contra-asset account.)

   1. Show the adjusting entry at the end of the period to recognize bad debt expense. Use the account abbreviations from problem 1 above.
      • Debit:
      • Credit:
   2. What is the amount of net accounts receivable after recording the entry above?