Question

At December 31, Folgeys Coffee Company reports the following results for its calendar year.

Cash sales $918,000
Credit sales 318,000

Its year-end unadjusted trial balance includes the following items.

Accounts receivable $143,000 debit
Allowance for doubtful accounts 6,800

Required:
Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be (1) 5% of credit sales, (2) 3% of total sales and (3) 8% of year-end accounts receivable.

Answer 1

1. Dr Bad debts expense $15,900

Cr Allowance for Doubtful Accounts $15,900

2. Dr Bad debts expense $37,080

C Allowance for Doubtful Accounts $37,080

3. Dr Bad debts expense $18,240

Cr Allowance for Doubtful Accounts $18,240

Preparation of the adjusting entry to record bad debts expense

1. Dr Bad debts expense $15,900

Cr Allowance for Doubtful Accounts $15,900

(318,000*5%)

2. Dr Bad debts expense $37,080

C Allowance for Doubtful Accounts $37,080

[(918000+318,000)*3%]

3. Dr Bad debts expense $18,240

Cr Allowance for Doubtful Accounts $18,240

[(143,000*8%) + 6800]