Question

At December 31, Folgeys Coffee Company reports the following results for its calendar year. Cash sales $ 913,000 Credit sales 313,000 Its year-end unadjusted trial balance includes the following items. Accounts receivable $ 138,000 debit Allowance for doubtful accounts 6,300 debit Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be (1) 4% of credit sales, (2) 2% of total sales and (3) 7% of year-end accounts receivable.

Answer 1

Folgeys Coffee Company

(1) 4% of credit sales:

Debit Bad Debts Expense $18,820

Credit Allowance for Doubtful Accounts $18,820

To record bad debts expense and bring the balance to $12,520

(2) 2% of total sales:

Debit Bad Debts Expense $30,820

Credit Allowance for Doubtful Accounts $30,820

To record bad debts expense and bring the balance to $24,520.

(3) 7% of year-end accounts receivable:

Debit Bad Debts Expense $15,960

Credit Allowance for Doubtful Accounts $15,960

To record bad debts expense and bring the balance to $9,660.

Step-by-step explanation:

a) Data and Calculations:

Cash Sales = $913,000

Credit Sales = $313,000

Total Sales = $1,226,000

Accounts Receivable = $138,000 Debit

Allowance for Doubtful Accounts = $6,300 debit

Estimated uncollectibles:

(1) 4% of credit sales:

= $12,520 ($313,000 * 4%)

Bad Debts Expense $18,820

Allowance for Doubtful Accounts $18,820

(2) 2% of total sales:

= $24,520 ($1,226,000 * 2%)

Bad Debts Expense $30,820

Allowance for Doubtful Accounts $30,820

(3) 7% of year-end accounts receivable:

= $9,660 ($138,000 * 7%)

Bad Debts Expense $15,960

Allowance for Doubtful Accounts $15,960