Question

At December 31. 2017, Sherman 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 receivables....$575,000

Allowance for bad debt......$7500

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

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

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

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

2. Show how the net accounts receivables will appear on its December 31, 2017 balance sheet given the facts in part 1a

Answer 1

1a) Adjusting entry

Date	account and explanation	Debit	Credit
	Bad debt expense (1342000*2.5%)	33550
	Allowance for doubtful accounts		33550

1b) Adjusting entry

Date	account and explanation	Debit	Credit
	Bad debt expense (2367000*1.5%)	35505
	Allowance for doubtful accounts		35505

1c) Adjusting entry

Date	account and explanation	Debit	Credit
	Bad debt expense (575000*6%-7500)	27000
	Allowance for doubtful accounts		27000

2) Balance sheet

Current assets
Account receivable	575000
Less: Allowance for doubtful accounts	-41050	533950