Question

Knowledge Check 01 Carlton Company uses the percent of sales method to estimate its bad debt expense. Based on past experience, the company estimates 2 percent of credit sales to be uncollectible. At the end of the current year, the company's unadjusted trial balance shows Accounts Receivable of $245,000 and Credit Sales of $900,000. Prepare the necessary December 31 adjusting entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Answer 1

Step-by-step explanation:

The adjusting entry is shown below:

Bad debt expense A/c Dr $18,000

To Allowance for doubtful accounts $18,000

(Being bad expense is adjusted)

The bad debt expense is computed by

= Credit sales × uncollectible percentage

= $900,000 × 2%

= $18,000

The same amount will be credited to Allowance for doubtful accounts as it records only estimated value.