Ch7. Video 9 - Percent of Receivables example

The video tutorial explains the percentage of receivables method for calculating the Allowance for Doubtful Accounts (ADA). It highlights the difference between this method and the percentage of sales method. The tutorial walks through an example where 1% of outstanding receivables is estimated to be uncollectible, leading to a calculated ADA balance. The key takeaway is understanding how to adjust the ADA by subtracting the existing balance to reach the desired ending balance. The tutorial emphasizes the importance of correctly interpreting the numbers and making necessary adjustments to the balance sheet.

What percentage of Juliet Company's outstanding receivables balance is estimated to be uncollectible?

• 5%

• 10%

• 2%

• 1%

In the percentage of receivables method, what does the calculated number represent?

• The ending ADA balance

• The net realizable value

• The amount to add to ADA

• The total receivables balance

How do you determine the amount to add to ADA in the percentage of receivables method?

• Divide the calculated number by the total receivables

• Add the calculated number directly

• Subtract the existing ADA balance from the calculated ending balance

• Multiply the calculated number by 2

What is the journal entry for adjusting the ADA using the percentage of receivables method?

• Debit ADA, Credit Bad Debt Expense

• Debit ADA, Credit Receivables

• Debit Bad Debt Expense, Credit ADA

• Debit Receivables, Credit ADA

How does the adjustment affect the net realizable value on the balance sheet?

• It increases the net realizable value

• It has no effect on the net realizable value

• It decreases the net realizable value

• It doubles the net realizable value