2. The trial balance before adjustment of Agape Company reports the following ba

Question

2. The trial balance before adjustment of Agape Company reports the following balances: Accounts receivable Allowance for doubtful accounts Sales (all on credit) Sales returns and allowances $1,000,000 $ 3,000 2,080,000 80,000 Instructions (a) Prepare journal entries for estimated bad debts assuming that doubtful accounts (b) Assume that all the information above is the same, except that the Allowance for are estimated to be (i) 2% of gross accounts receivable and (ii) 1% of net sales. Doubtful Accounts has a debit balance of $1,500 instead of a credit balance. How will this difference affect the journal entries in part (a)?

Explanation / Answer

a i Bad debts expense 17000 =(1000000*2%)-3000       Allowance for doubtful accounts 17000 ii Bad debts expense 20000 =(2080000-80000)*1%       Allowance for doubtful accounts 20000 b i Bad debts expense 21500 =(1000000*2%)+1500       Allowance for doubtful accounts 21500 ii Bad debts expense 20000       Allowance for doubtful accounts 20000

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