E9-2 :The ledger of Elburn Company at the end of the current year shows Accounts Receivable $110,000, Sales $840,000, and Sales Returns and Allowances $28,000.

(c) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.

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Bad Debts Expenses Debit 28,000
Allowences for Doudtful acc Credit 28,000

A/R Debit 100,000
Sales Credit 100,000

Sales Debit 840,000
Cash Credit 840,000

Quote:

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Originally Posted by Dene82

E9-2 :The ledger of Elburn Company at the end of the current year shows Accounts Receivable $110,000, Sales $840,000, and Sales Returns and Allowances $28,000.

(c) If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.

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(1)
Dr. Bad debts expense $6,090
Cr. Allowance for doubtful accounts 6,090

($840,000 - 28,000) x 0.75% = 6,090

(2)

Dr. Bad debts expense $6,800
Cr. Allowance for doubtful accounts 6,800

Allowance required $110,000 x 6% = 6,600
Balance in allowance account - debit 200
Charge to income statement.. . 6,800