Chapter 16, Problem 3CP

At the end of 20-3, Martel Co. had $410,000 in Accounts Receivable and a credit balance of $300 in Allowance for Doubtful Accounts. Martel has now been in business for three years and wants to base its estimate of uncollectible accounts on its own experience.

Assume that Martel Co.’s adjusting entry for uncollectible accounts on December 31, 20-2, was a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts of $25,000.

1. (a) Estimate Martel’s uncollectible accounts percentage based on its actual bad debt experience during the past two years.
2. (b) Prepare the adjusting entry on December 31, 20-3, for Martel Co.’s uncollectible accounts.