Question

The trial balance before adjustment of Reba McIntyre Inc. shows the following balances.

Accounts Receivable 84,100
Allowance for Doubtful Accts. 2,950
Sales Revenue (all on credit)554,000
Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4?
1) Increase Bad Debts Expense and Decrease Allowance for Doubtful Accounts by $3,364
2) Increase Bad Debts Expense and Decrease Allowance for Doubtful Accounts by $2,950
3) Increase Bad Debts Expense and Decrease Allowance for Doubtful Accounts by $84,100
4) Increase Bad Debts Expense and Decrease Allowance for Doubtful Accounts by $554,000

Answer 1

The entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of 4% is to increase Bad Debts Expense and decrease Allowance for Doubtful Accounts by $3,364.

Step-by-step explanation:

The entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of 4% is:

1. Increase Bad Debts Expense and Decrease Allowance for Doubtful Accounts by $3,364

When using the percentage of 4% to estimate bad debts, the Bad Debts Expense is increased and the Allowance for Doubtful Accounts is decreased by the estimated amount. In this case, the estimated amount would be $3,364 which is 4% of the Accounts Receivable balance of $84,100.