Question

A company has $255,000 in credit sales. Using the allowance method, with an allowance for doubtful accounts of $7450, and estimating 6% of credit sales as uncollectible, what is the amount of the journal entry to record estimated uncollectible accounts?

a) Debit Bad Debt Expense $15,300; Credit Allowance for Doubtful Accounts $15,300
b) Debit Allowance for Doubtful Accounts $15,300; Credit Bad Debt Expense $15,300
c) Debit Bad Debt Expense $15,270; Credit Allowance for Doubtful Accounts $15,270
d) Debit Allowance for Doubtful Accounts $15,270; Credit Bad Debt Expense $15,270

Answer 1

To estimate uncollectible accounts using the allowance method, calculate 6% of the company's credit sales ($255,000), which results in $15,300. Then record the journal entry as a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts for the estimated amount.

Step-by-step explanation:

To determine the amount of the journal entry to record estimated uncollectible accounts using the allowance method, you would first calculate 6% of the company's credit sales. The company has $255,000 in credit sales, so 6% of this amount is $255,000 * 0.06, which is $15,300. This is the estimate of the bad debt expense for the period.

Next, you record the journal entry by debiting Bad Debt Expense and crediting Allowance for Doubtful Accounts with the estimated amount of $15,300. This reflects the expected uncollectible amounts in the financial statements. Therefore, the journal entry is: Debit Bad Debt Expense $15,300; Credit Allowance for Doubtful Accounts $15,300. It's important to note that the current balance of the Allowance for Doubtful Accounts before this entry is not relevant to the calculation of the expense—it’s used later when specific receivables are deemed uncollectible.