### Determining Bad Debts Expense Using the Percent of Receivables Method**Scenario Overview:**A company at year-end needs to determine its bad debts expense using the percent of receivables method. The unadjusted trial balance provides the following selected amounts:#### Accounts and Balances| Account | Amount (in $) | Dr./Cr. ||-----------------------------------|---------------|---------|| Accounts Receivable | 435,000 | Debit || Allowance for Doubtful Accounts | 1,250 | Credit || Net Sales | 2,100,000 | Credit |All sales are made on credit. Based on past experience, the company estimates that 3.5% of ending accounts receivable will be uncollectible. **Question:**What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?**Explanation and Calculation:**1. **Calculate the estimated uncollectible amount:** - Ending Accounts Receivable = $435,000 - Estimated Uncollectible Percentage = 3.5% - Estimated Uncollectible Amount = 435,000 * 0.035 = $15,2252. **Determine the required adjustment:** - Current Credit Balance in Allowance for Doubtful Accounts = $1,250 - Required Allowance for Doubtful Accounts = $15,225 - Adjustment Needed = Required Allowance - Current Balance - Adjustment Needed = $15,225 - $1,250 = $13,9753. **Adjusting Entry:** To record the estimated bad debts expense, the following journal entry is needed: | Account Title | Dr. (Debit) | Cr. (Credit) | |--------------------------|----------------|----------------| | Bad Debts Expense | 13,975 | | | Allowance for Doubtful Accounts | | 13,975 |This entry increases the Bad Debts Expense and adjusts the Allowance for Doubtful Accounts to the estimated uncollectible amount.**Conclusion:**The company should make an adjusting entry to debit Bad Debts Expense for $13,975 and credit Allowance for Doubtful Accounts for $13,975 to align with the estimated uncollectible accounts receivable.

Given that:Accounts Receivable = $435,000Balance in Allowance for doubtful accounts = $1250 (Credit)

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts and Balances Amount 435,000 1,250 2,100,000 Account Accounts receivable Allowance for Doubtful Accounts Net Sales Dr./Cr. Debit Credit Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts and Balances Amount 435,000 1,250 2,100,000 Account Accounts receivable Allowance for Doubtful Accounts Net Sales Dr./Cr. Debit Credit Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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