The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of

Question:

The Manda Panda Company uses the allowance method to account for bad debts. At the beginning of 2011, the allowance account had a credit balance of $75,000. Credit sales for 2011 totaled $2,400,000 and the yearend balance was $490,000. During this year, $73,000 in receivables were determined to be uncollectible. Manda Panda anticipates that 3% of all credit sales will ultimately become uncollectible. The fiscal year ends on December 31.

Required:
1. Does this situation describe a loss contingency? Explain.
2. What is the bad debt expense that Manda Panda should report in its 2011 income statement?
3. Prepare the appropriate journal entry to record the contingency.
4. What is the net realizable value (book value) Manda Panda should report in its 2011 balance sheet?

Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...