Question

At December 31, 2008, Ingleton Company reports the following results for the year.

  Cash sales: $1,025,000

Credit sales: $1,342,000

  In addition, its unadjusted trial balance includes the following items.

Accounts Receivable $575,000 debit

Allowance for doubtful accounts $7,500 credit

Required

Prepare the adjusting entry for Ingleton Co. to recognize bad debts under each of the following independent assumptions:

• Bad debts are estimated to be 2.5% of credit sales.  

• Bad debts are estimated to be 1.5% of total sales.    

• An aging analysis estimates that 6% of year-end accounts receivable are uncollectible

Answer 1

1	Bad debts expense	33,550
	Allowance for Doubtful Accounts		33,550
	(1,342,000*2.5%)
2	Bad debts expense	35,505
	Allowance for Doubtful Accounts		35,505
	(1,025,000+1,342,000)*1.5%
3	Bad debts expense	27,000
	Allowance for Doubtful Accounts		27,000
	(575,000*6%) - 7,500