Question

At December 31, Folgeys Coffee Company reports the following results for its calendar year. Cash sales $ 900,000Credit sales 300,000 Its year-end unadjusted trial balance includes the following items. Accounts receivable $ 125,000 debitAllowance for doubtful accounts 5,000 debit a.Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 1.5% of credit sales.b.Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 0.5% of total sales.c.Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 6% of year-end accounts receivable.

Answer 1

Step-by-step explanation:

The journal entries are shown below:

a. Bad debt expense A/c Dr $4,500

To Allowance for doubtful debts $4,500

(Being bad debt expense is recorded)

The computation of the bad debt expense is shown below:

= Credit sales × estimated percentage given

= $300,000 × 1.5%

= $4,500

b. Bad debt expense A/c Dr $6,000

To Allowance for doubtful debts $6,000

(Being bad debt expense is recorded)

The computation of the bad debt expense is shown below:

= (Cash sales + Credit sales) × estimated percentage given

= ($900,000 + $300,000) × 0.5%

= $6,000

c. Bad debt expense A/c Dr $12,500

To Allowance for doubtful debts $12,500

(Being bad debt expense is recorded)

The computation of the bad debt expense is shown below:

= Allowance for doubtful accounts + (Accounts receivable × estimated percentage given )

= $5,000 + ($125,000 × 6%)

= $5,000 + $7,500

= $12,500