Question

Credit Losses Based on Credit Sales Lewis Company uses the allowance method for recording its expected credit losses. It estimates credit losses at 1% of credit sales which were $1,250,000 during the year. On December 31, the Accounts Receivable balance was $300,000 and the Allowance for Doubtful Accounts had a credit balance of $13,200 before adjustment.

1. a. Prepare the adjusting entry to record the credit losses for the year.

1. b. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.

a.

	General Journal
Date	Description	Debit	Credit
Dec.31	AnswerBad Debts ExpenseAllowance for Doubtful Accounts	Answer	Answer
	AnswerBad Debts ExpenseAllowance for Doubtful Accounts	Answer	Answer
	To record allowance for credit losses.

b. (Do not use negative signs with your answers)

	Current Assets:
	AnswerAccounts ReceivableLess: Allowance for Doubtful Accounts	Answer
	AnswerAccounts ReceivableLess: Allowance for Doubtful Accounts	Answer
		Answer

Please answer all parts of the question.

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Answer 1

Date General Journal Debit Credit $ 12,500 Dec-31 Bad Debt expense Allowance for Doubtful Accounts (To record allowance for credit losses) $ 12,500 Bad debt expense = $ 1250000 *1% = 12500 Lewis Company Balance Sheet (partial ) Current Assets Accounts receivable Less : Allowance for doubtful accounts Net Accounts receivable $ $ $ 300,000 25,700 274,300 Working Notes Allowance for doubtful accounts Balance before adjustment Add: Currnet year estimated amount Ending balance $ $ $ 13,200 12,500 25,700