As of December 31,Frappa Company has a balance of $5,000 in accounts receivable.Of this amount $500 is past due and the remainder is not yet due.Frappa has a credit balance of $45 in the allowance for doubtful accounts.Frappa Company estimates its bad debt losses using the aging of receivables method,with estimated bad debt loss rates equal to 1% of accounts not yet due and 10% of past due accounts.How would the required adjusting journal entry be recorded in the Allowance for Doubtful Accounts?
A)$95 (credit).
B)$55 (credit).
C)$50 (credit).
D)$45 (debit).

Question

Quizplus · Accepted Answer

According to the aging of receivables method, we need to calculate the estimated bad debt losses for accounts not yet due and past due accounts separately.

Accounts not yet due: 
$4,500 (total accounts not yet due) * 1% (estimated bad debt loss rate) = $45

Past due accounts: 
$500 (past due accounts) * 10% (estimated bad debt loss rate) = $50

Therefore, the total estimated bad debt loss is $95.

To record this in the Allowance for Doubtful Accounts, we need to credit the account for this amount since we are reducing the balance. However, we already have a credit balance of $45 in the account, so we only need to credit it for the difference:

$95 (total estimated bad debt loss) - $45 (credit balance in the account) = $50

Thus, the required adjusting journal entry would be:

Allowance for Doubtful Accounts $50 (credit) 
Bad Debt Expense $50 (debit)

As of December 31,Frappa Company Has a Balance of $5,000