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Aaliyah Company Adjusting Entries for Bad Debt Expense

At December 31, 2008, Aaliyah Company records show the following results for the calendar -year:

cash sales $ 1,591, 700
credit sales 2,389,000

In addition, its unadjusted trial balance includes the following items:

accounts receivable $ 1,630,846 debit
allowance for doubtful accounts 12,650 debit

Requirement 1:
Prepare the adjusting entry for Aaliyah Co. to recognize bad debts under each of the following independent assumptions

a.bad debt are estimate to be 2% of credit sales.
b.bad debt are estimated to be 3% of total sales.
c.an aging analysis estimates that 5% of the year-end accounts receivable are uncollectible.

Solution Preview

a.bad debt are estimate to be 2% of credit sales.

Under this scenario, the bad debt expense is computed as 2 percent of credit sales and the balance in the Allowance for Doubtful accounts is the beginning balance plus the bad debt expense. Thus,

Credit sales $2,389,000
Bad debt percentage x .02
Bad debt expense $ 47,780 ($2,389,000*.02)

Bad Debt Expense 47,780
Allowance for doubtful accounts 47,780

b.bad debt are estimated to be 3% of total sales.

Under this ...

Solution Summary

At December 31, 2008, Aaliyah Company records show the following results for the calendar year:

Cash sales $ 1,591,700
Credit sales 2,389,000

In addition, its unadjusted trial balance includes the following items:

Accounts receivable $ 1,630,846 debit
Allowance for doubtful accounts 12,650 debit

Requirement 1:
Prepare the adjusting entry for Aaliyah Co. to recognize bad debts under each of the following independent assumptions

a.bad debts are estimate to be 2% of credit sales.
b.bad debts are estimated to be 3% of total sales.
c.an aging analysis estimates that 5% of the year-end accounts receivable are uncollectible.

$2.19