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    Journal entries for estimated bad debts and allowance

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    Please explain how to prepare these entries:

    Entries for bad debt expense
    The trial balance before adjustment of Suarez Company reports the following balances:

    Dr. Cr.
    Accounts receivable $100,000
    Allowance for doubtful accounts $2,500
    Sales (all on credit) 750,000
    Sales returns and allowances 40,000

    (a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (1) 6% of gross accounts receivable and (2) 1% of net sales.
    (b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $2,500 instead of a credit balance. How will this difference affect the journal entries in part (a)?

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    Solution Preview

    (a)(1) In the percentage of accounts receivable method, the total value in the allowance account after the entry should be equal to the percentage of receivable amount that is calculated. In this method we also consider the current balance in the allowance account and accordingly calculate the amount of bad debt expense

    Gross Accounts Receivable = 100,000
    6% of ...

    Solution Summary

    The solution explains journal entries for estimated bad debts and allowance