Question

At December 31, Folgeys Coffee Company reports the following results for its calendar year. Cash sales $ 915,000 Credit sales 315,000 Its year-end unadjusted trial balance includes the following items. Accounts receivable $ 140,000 debit Allowance for doubtful accounts 6,500 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

(a) 6% of credit sales,

bad debt = 0.06 x $315,000 = $18,900

adjusting journal entry

Dr Bad debt expense (= $6,500 + $18,900) 25,400

Cr Allowance for doubtful accounts 25,400

(b) 4% of total sales

bad debt = 0.04 x $1,230,000 = $49,200

adjusting journal entry

Dr Bad debt expense (= $6,500 + $49,200) 55,700

Cr Allowance for doubtful accounts 55,700

and (c) 9% of year-end accounts receivable.

bad debt = 0.09 x $140,000 = $12,600

adjusting journal entry

Dr Bad debt expense (= $6,500 + $12,600) 19,100

Cr Allowance for doubtful accounts 19,100

Allowance for doubtful accounts is a contra asset account with a normal credit balance.