As of December 31,Frappe Company has a balance of $5,000 in accounts receivable.Of this amount,$500 is past due and the remainder is not yet due.Frappe has a credit balance of $45 in the Allowance for Doubtful Accounts.Frappe 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 will the Bad Debt Expense account be included in the required adjusting journal entry at year-end?
A)Debit of $95
B)Credit of $95
C)Debit of $50
D)Credit of $50

Question

Quizplus · Accepted Answer

The aging of accounts receivable method focuses on estimating the ending balance to be reported in the Allowance for Doubtful Accounts.To compute the amount of the adjustment,you must determine how much to increase (credit)the Allowance for Doubtful Accounts to reach the desired adjusted balance.
Adjusted balance of Allowance for Doubtful Accounts = ($4,500 × 1%)+ ($500 × 10%)= $95
Ending balance in Allowance for Doubtful Accounts = Unadjusted credit (debit)balance in Allowance for Doubtful Accounts + Bad Debt Expense
Bad Debt Expense = Ending balance in Allowance for Doubtful Accounts − Unadjusted ending credit (debit)balance in Allowance for Doubtful Accounts
= $95 − $45 = $50
The entry will include a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts for $50.

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