Question

MGS Company reports the following for its 2020 operations:

Sales Revenue:
Cash Sales $1,200,000
Credit Sales 300,000
Accounts Receivable 150,000
Allowance for Doubtful Accounts 3,000 Debit
Prepare the adjusting entry to record bad debts expense: Bad Debts Expense Allowance for Doubtful Accounts
a. Assuming uncollectibles are estimated to be 5% of credit sales $____ $____
b. Assuming uncollectibles are estimated to be 5% of accounts receivable $____ $_____

Answer 1

To record the bad debts expense, the adjusting entry is: a) Bad Debts Expense $15,000, Allowance for Doubtful Accounts $15,000 b) Bad Debts Expense $7,500, Allowance for Doubtful Accounts $7,500.

Step-by-step explanation:

To prepare the adjusting entry to record bad debts expense, we need to estimate the amount of uncollectible accounts based on the provided information.

1. a. Assuming uncollectibles are estimated to be 5% of credit sales:
2. The bad debts expense would be $300,000 x 5% = $15,000. The entry would be:
3. Bad Debts Expense $15,000
4. Allowance for Doubtful Accounts $15,000
5. b. Assuming uncollectibles are estimated to be 5% of accounts receivable:
6. The bad debts expense would be $150,000 x 5% = $7,500. The entry would be:
7. Bad Debts Expense $7,500
8. Allowance for Doubtful Accounts $7,500