Question

The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable $ 433,000 Debit Allowance for Doubtful Accounts 1,370 Debit Net Sales 2,220,000 Credit All sales are made on credit. Based on past experience, the company estimates 1.0% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense

Answer 1

Answer:

Journal Entry:

Debit Bad Debts $23,370

Credit Allowance for Doubtful Accounts $23,370

To record bad debts expense and bring the balance of Allowance to $22,000 (credit)

Explanation:

a) Data and Calculations:

Accounts receivable $ 433,000

Debit Allowance for Doubtful Accounts 1,370 Debit

Net Sales 2,220,000

Estimated uncollectible = 1.0% of credit sales

= $2,220,000 * 1% = $22,000

Adjusting entry analysis:

Bad Debts $23,370

Allowance for Doubtful Accounts $23,370