Question

During the year, Luke's Hobbies had the following: Net Sales Cash Sale Credit Sales $422.000 111.000 Collection on Credit sales Beginning Accounts Receivable Ending Accounts Receivable 300,000 54,000 Allowance for Doubtful Accounts 2,700 Credit 1. Experience suggests that bad debts will amount to 2.7% of credit sale. The company uses the percent-of-sales allowance method to account for uncollectibles. Journalize the Bad Debt Expense. 2. Assume the same facts as in #1 except Luke's Hobbies uses the percent-of-receivable method. Experience suggests that the uncollectible accounts will amount to 4.9% of accounts receivable. Journalize the adjustment to record the bad debt expense. Record pro ervices b er 31. Round to

Answer 1

Ans. 1	General Journal	Debit	Credit
	Bad debts expense	$2,997
	Allowance for doubtful accounts		$2,997
	(being adjusting entry made )
	*Credit sales = Total sales - Cash sales
	$422,000 - $111,000
	$311,000
	Bad debts expenses =   Credit sales * 2.7%
	$311,000 * 2.7%
	$8,397
Ans. 2	General Journal	Debit	Credit
	Bad debts expense	$485
	Allowance for doubtful accounts		$485
	(being adjusting entry made )
	*Uncollected credit sales = Total credit sales - Collection on credit sales
	$311,000 - $300,000   =   $11,000
	*Total accounts receivables = Beginning accounts receivable + Uncollected credit sales
	$54,000 + $11,000 = $65,000
	Estimated balance of uncollectible accounts = Accounts receivable * 4.9%
	$65,000 * 4.9%
	$3,185
	*Bad debts expenses = Estimated balance - Unadjusted credit balance
	$3,185 - $2,700
	$485