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    Aaliyah Company Adjusting Entries for Bad Debt Expense

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    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.

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    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.

    $2.49

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