In: Accounting
Question 7 (20 minutes) (AR and AFDA)
Gauthier Services uses the percentage of accounts receivable method
for estimating bad debts, and concludes at the end of the fiscal
year that 1.5 % of accounts receivable will become uncollectible.
Sales are $776,500 for the fiscal year ending December 31, 2010 and
sales returns and allowances amounted to $20,800. All sales were on
account and the balance of accounts receivable at December 31, 2010
was $185,000 and the allowance for doubtful accounts, before any
year-end adjustments, had a debit balance of $449.
Instructions
a) Prepare any required adjusting journal entry at December 31, 2010
b) Assume now that the percentage of sales method is used instead of the percentage of accounts receivable basis and that ½ of 1 % of net credit sales are estimated as being uncollectible. Also assume that the allowance for doubtful accounts has a debit balance of $650. Prepare any required adjusting journal entry at December 31, 2010.
c) Show how net accounts receivable would be reported on the balance sheet after recording the adjusting journal entry at December 31, 2010, under the assumption (b) above.