At December 31, 2010, Aaliyah Company reports the following results for its cale

Question

At December 31, 2010, Aaliyah Company reports the following results for its calendar year.

In addition, its unadjusted trial balance includes the following items

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

a) Bad debts are estimated to be 4% of credit sales

b) Bad debts are estimated to be 3% of total sales

c) An aging analysis estimates that 7% of year-end accounts receivable are uncollectible

*options for debit sides: Allowances for Doubtful Accounts, Sales Expense and Allowance, Accounts Receivable, Bad Debt Expense, Accounts Payable

*options for credit sides: Sales, Cash, Allowance for doubtful Accounts, Accounts Receivable, Bad Debts Expense

Reqirement 2: Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its Dec 31, 2010 balance sheet given the facts in requirement 1a

Requirement 3: Show how the accounts receivable and the allowance for doubtful accounts appear on its dec 31, 2010 partial balance sheet given the facts in requirement 1c

*same partial balance sheet set-up as requirement 2

Cash Sales 2112110 Credit sales 3920000

Explanation / Answer

Adjusting entries:

a. 3,920,000 x 4% + 18,100 = $ 174,900

b. 6,032,110 x 3% + 18,100 = $ 199,063

c. 1,187,760 x 7% + 18,100 = $ 101,243

Partial balance sheet:

Adjusting entry # Account Title Debit Credit $ $ a. Bad debt expense 174,900 Allowance for doubtful accounts 174,900 b. Bad debt expense 199,063 Allowance for doubtful accounts 199,063 c. Bad debts expense 101,243 Allowance for doubtful accounts 101,243

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