On December 31, 20XX, LBI, Incorporated\'s records indicate the following sales

Question

On December 31, 20XX, LBI,

Incorporated's records indicate the following sales results for the

year:

Cash sales: $1,025,000

Credit sales: $1,342,000

In addition, its unadjusted trial

balance at December 31, 20XX includes the following accounts:

Account receivable: $575,000 debit

balance

Allowance for doubtful accounts:

$7,500 credit balance

A. Prepare the adjusting entry for

LBI, Incorporated to recognize bad debts under each of the

followingÂ

"text-decoration:underline;">independent

 assumptions:

a. Bad debts are estimated to be 2.5%

of credit sales.

b. Bad debts are estimated to be 1.5%

of total sales.

c. 6% of accounts receivable at

year-end are uncollectible.

d. Show the December 31, 20XX balance

sheet presentation of the Company's accounts receivable and related

accounts for part (a) above.

B. Assume the LBI's accounts

receivable balance $575,000, with no allowance for doubtful

accounts, and uses the direct write-off method of accounting for

uncollectible accounts receivable. Â A review of the

Company's December 31, 20XX accounts receivable revealed that

accounts totaling $19,975 would not be collected.

a. Prepare the adjusting entry to

recognize bad debts under this assumption.

b. Show the December 31, 20XX balance

sheet presentation of the Company's accounts receivable and related

accounts for this assumption.

Explanation / Answer

A, DR Bad Debt Expense 33,550.00 CR Allowance for doubtful accounts 33,550.00 (1,342,000 *..025) DR Bad Debt Expense 20,130.00 CR Allowance for doubtful accounts 20,130.00 (1,342,000 *.015) DR Bad Debt Expense 27,000 CR Allowance for doubtful accounts 27,000 (575,000*.06 -7,500) Accounts Receivable 533,950 (net of allowance for doubtful accounts of 41,050) B DR Bad Debt Expense 19,975.00 CR Accounts Receivable 19,975.00 Accounts Receivable 555,025 (575,000- 19,975)

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