Question

QUESTION 8

1. Table 6-2
   Triangle Company has sales of $900,000, of which 25% are cash sales and the remainder is on credit. As of year-end, but before the bad debts adjustment, the Allowance for Uncollectible Accounts has a credit balance of $300, and accounts receivable has a debit balance of $60,000.
   
   
   Referring to Table 6-2, if bad debts are estimated to be 1.5% of credit sales, what journal entry will Triangle Company need to prepare in order to estimate bad debts?

   		Bad Debts Expense                                  9,525 Allowance for Uncollectible Accounts                         9,525
   		Bad Debts Expense                              10,425 Allowance for Uncollectible Accounts                     10,425
   		Allowance for Uncollectible Accounts      10,125 Accounts Receivable                                                10,125
   		Bad Debts Expense                                 10,125 Allowance for Uncollectible Accounts                            10,125
   		Bad Debts Expense                             13,500 Accounts Receivable                                               13,500

Answer 1

Total sales = $900,000

Cash sales = 25%

= 900,000 x 25%

= $225,000

Credit sales = Total sales - Cash sales

= 900,000-225,000

= $675,000

Bad debt expense = 1.5% of credit sales

= 675,000 x 1.5%

= $10,125

When bad debt expense is estimated on the basis of sales, Existing balance in allowance for uncollectible accounts is ignored while calculating bad debt expense. Hence, following journal entry will be made to estimate bad debts :

Bad Debts Expense                                 10,125 Allowance for Uncollectible Accounts                            10,125

Fourth option is correct option.

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