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The trial balance before adjustment of Risen Company reports the following balances:

Dr. Cr.
Accounts receivable $300,000
Allowance for doubtful accounts $5,000
Sales (all on credit) 1,700,000
Sales returns and allowances 80,000

nstructions

(a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be 6% of gross accounts receivable.

(b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $5,000 instead of a credit balance. How will this difference affect the journal entries in part (a)?

(c) what is the theoretical justification for the percentage -of-recievables method used to estimate bad debts?

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Irving Heathcote
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30 Sep 2019
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Related questions

The following selected amounts are reported on the year-endunadjusted trial balance report for a company that uses the percentof sales method to determine its bad debts expense. Accountsreceivable $ 430,000 Debit Allowance for Doubtful Accounts 1,400Debit Net Sales 2,250,000 Credit All sales are made on credit.Based on past experience, the company estimates 1.0% of creditsales to be uncollectible. What adjusting entry should the companymake at the end of the current year to record its estimated baddebts expense? Multiple Choice Debit Bad Debts Expense $5,700;credit Allowance for Doubtful Accounts $5,700. Debit Bad DebtsExpense $22,500; credit Allowance for Doubtful Accounts $22,500.Debit Bad Debts Expense $23,900; credit Allowance for DoubtfulAccounts $23,900. Debit Bad Debts Expense $4,300; credit Allowancefor Doubtful Accounts $4,300. Debit Bad Debts Expense $21,100;credit Allowance for Doubtful Accounts $21,100.

Dr. Cr.

Accountsreceivable $150,000

Allowance for doubtfulaccounts $ 2,500

Sales (all oncredit) 850,000

Sales returns andallowances 40,000

Instructions

(a) Prepare the entriesfor estimated bad debts assuming that doubtful accounts areestimated to be (1) 6% of gross accounts receivable and (2) 1% ofnet sales.

(b) Assume that all theinformation above is the same, except that the Allowance forDoubtful Accounts has a debit balance of $2,500 instead of a creditbalance. How will this difference affect the journal entries inpart (a)?

(c) What is thetheoretical justification for each of the two allowance methodsused to estimate bad debts?

21 In 2007, Corey Company had service revenue of $1.0 million dollars, half of which represented an accounts receivable and half was paid in cash. At year end its A/R totaled $120,000 and its allowance for doubtful accounts had a $1,500 credit balance. Record the necessary journal entry 12/31/07 if: Big Bucks estimates 1.5% of credit sales are uncollectible. a. No entry required. b. Dr. Bad Debts $1,500 Cr Allowance for doubtful accounts $1,500.00 c. Dr. Bad Debts $300 Cr Allowance for doubtful accounts $300.00 d. Dr. Bad Debts $15,000 Cr Allowance for doubtful accounts $15,000.00 e. None of the above. The correct answer is 'c'.

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