Inc. reported the following amounts shortly before it made its year-end adjustments at June 30, 2005:
Answer each of the following independent questions concerning Cast, Inc.:
1. How do you know that Cast uses the allowance method?
2. If Cast estimates that uncollectible accounts will be 1% of net sales, prepare the adjusting entry.
3. If Cast estimates that uncollectible accounts will be 8% of gross accounts receivable, prepare the adjusting entry.
4. Assume that the $760 balance in the Allowance account is now a debit balance.
a. Prepare the adjusting entry using the 1% of net sales approach.
b. Prepare the adjusting entry using the 8% of gross accounts receivable approach.
Solution discusses the two methods for providing for bad debts and gives solution in T account format for easy visualization of the adjusting entry needed.