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19 July, 20:41

The unadjusted trial balance at year-end for a company that uses the percent of receivables method to determine its bad debts expense reports the following selected amounts: Accounts receivable $ 435,000 Debit Allowance for Doubtful Accounts 1,250 Credit Net Sales 2,100,000 Credit All sales are made on credit. Based on past experience, the company estimates 3.5% of ending account receivable to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

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  1. 19 July, 22:17
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    Given that,

    Accounts receivable = $435,000

    Debit Allowance for Doubtful Accounts = 1,250

    Credit Net Sales = 2,100,000

    Ending account receivable to be uncollectible = 3.5%

    Estimated bad debts:

    = Accounts Receivable * 3.5% + Debit balance in Allowance for Doubtful Accounts

    = (435,000 * 3.5%) + 1,250

    = $16,475

    Therefore, the journal entry is as follows:

    Bad debts expense A/c Dr. $16,475

    To Allowance for Doubtful Accounts $16,475
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