Question

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 (a) 6% of credit sales, (b) 4% of total sales and (c) 9% of year-end accounts receivable.

Answer 1

The journal entries are as follows:

(a) 6% of credit sales,

Bad debts expense A/c Dr. $18,420

To Allowance for doubtful accounts $18,420

(To record the bad debt expense)

Workings:

Bad debt expense:

= 6% of credit sales

= 0.06 × 307,000

= $18,420

(b) 4% of total sales,

Bad debts expense A/c Dr. $48,560

To Allowance for doubtful accounts $48,560

(To record the bad debt expense)

Workings:

Bad debt expense:

= 4% of Total sales

= 0.04 × (307,000 + 907,000)

= 0.04 × $1,214,000

= $48,560

(c) 9% of year-end accounts receivable,

Bad debts expense A/c Dr. $17,580

To Allowance for doubtful accounts $17,580

(To record the bad debt expense)

Workings:

Bad debts expense:

= 9% of year-end accounts receivable

= (0.09 × $132,000) - $5,700

= $11,880 + $5,700

= $17,580