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Computing Bad Debts and Preparing Journal Entries

The trial balance before adjustment of Reba McIntyre Inc. shows the following balances.

Dr. Cr.
Accounts Receivable $90,000
Allowance for Doubtful Accounts 1,750
Sales (all on credit) $680,000

Instructions
Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 1% of net sales.

Solution Preview

(a) 4% of gross accounts receivable

The gross accounts receivable are 90,000 and 4% of this is 3,600. In percentage of accounts receivable method we take into consideration the balance ...

Solution Summary

The solution explains how to prepare the adjusting entries for bad using the percentage of receivables method and the percentage of sales method

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