Question

Exercise 7-16 (Algo) Estimating bad debts LO P3 At December 31, Folgeys Coffee Company reports the following results for its calendar year. Cash sales $ 907,000 Credit sales 307,000 Its year-end unadjusted trial balance includes the following items. Accounts receivable $ 132,000 debit Allowance for doubtful accounts 5,700 debit Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be (1) 6% of credit sales, (2) 4% of total sales and (3) 9% of year-end accounts receivable.

Answer 1

1. Dr Bad debts expense $18,420

Cr Allowance for Doubtful Accounts $18,420

2. Dr Bad debts expense $48,560

Cr Allowance for Doubtful Accounts $48,560

3. Dr Bad debts expense $17,580

Cr Allowance for Doubtful Accounts $17,580

Step-by-step explanation:

Preparation of the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be :

(1) 6% of credit sales

Dr Bad debts expense $18,420

Cr Allowance for Doubtful Accounts $18,420

(307,000*6%)

2. 4% of total sales

Dr Bad debts expense $48,560

Cr Allowance for Doubtful Accounts $48,560

[(907,000+307,000)*4% ]

3. 9% of year-end accounts receivable

Dr Bad debts expense $17,580

Cr Allowance for Doubtful Accounts $17,580

[(132,000*9%) + 5700]