Red Hat, Inc., is a software development company that recently reported the following amounts in its unadjusted trial balance as of February 29, 2016. Debits Credits Accounts Receivable $34,191,000 959,000 161,812,000 Allowance for Doubtful Accounts Sales and Service Revenue Required: 1. Assume Red Hat uses 3/4 of 1 percent of revenue to estimate its bad debt expense for the year. Prepare the adjusting journal entry required at February 29 for recording Bad Debt Expense. 2. Assume instead that Red Hat uses the aging of accounts receivable method and estimates that $1,021,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense. TIP: The aging of accounts receivable method focuses on calculating what the adjusted Allowance for Doubtful Accounts balance should be. You need to consider the existing balance when determining the adjustment. 3. Assume that the unadjusted balance in Red Hat's Allowance for Doubtful Accounts at February 29 was a debit balance of $1,750,000. Red Hat uses the aging of accounts receivable method and estimates that $959,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense. 4. If one of Red Hat's customers declared bankruptcy, what journal entry would be used to write off its $10,000,000 balance?
Red Hat, Inc., is a software development company that recently reported the following amounts in its unadjusted trial balance as of February 29, 2016. Debits Credits Accounts Receivable $34,191,000 959,000 161,812,000 Allowance for Doubtful Accounts Sales and Service Revenue Required: 1. Assume Red Hat uses 3/4 of 1 percent of revenue to estimate its bad debt expense for the year. Prepare the adjusting journal entry required at February 29 for recording Bad Debt Expense. 2. Assume instead that Red Hat uses the aging of accounts receivable method and estimates that $1,021,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense. TIP: The aging of accounts receivable method focuses on calculating what the adjusted Allowance for Doubtful Accounts balance should be. You need to consider the existing balance when determining the adjustment. 3. Assume that the unadjusted balance in Red Hat's Allowance for Doubtful Accounts at February 29 was a debit balance of $1,750,000. Red Hat uses the aging of accounts receivable method and estimates that $959,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense. 4. If one of Red Hat's customers declared bankruptcy, what journal entry would be used to write off its $10,000,000 balance?
Chapter6: Business Expenses
Section: Chapter Questions
Problem 44P
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Transcribed Image Text:Red Hat, Inc., is a software development company that recently reported the following amounts in its unadjusted trial balance as of
February 29, 2016.
Debits
Credits
Accounts Receivable
$34,191,000
959,000
161,812,000
Allowance for Doubtful Accounts
Sales and Service Revenue
Required:
1. Assume Red Hat uses 3/4 of 1 percent of revenue to estimate its bad debt expense for the year. Prepare the adjusting journal entry
required at February 29 for recording Bad Debt Expense.
2. Assume instead that Red Hat uses the aging of accounts receivable method and estimates that $1,021,000 of Accounts Receivable
will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense. TIP: The aging of
accounts receivable method focuses on calculating what the adjusted Allowance for Doubtful Accounts balance should be. You
need to consider the existing balance when determining the adjustment.
3. Assume that the unadjusted balance in Red Hat's Allowance for Doubtful Accounts at February 29 was a debit balance of
$1,750,000. Red Hat uses the aging of accounts receivable method and estimates that $959,000 of Accounts Receivable will be
uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense.
4. If one of Red Hat's customers declared bankruptcy, what journal entry would be used to write off its $10,000,000 balance?
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