QS 9-8 Percent of sales method LO P3 Warner Company’s year-end unadjusted trial balance shows accounts receivable of $105,000, allowance for doubtful accounts of $660 (credit), and sales of $340,000. Uncollectibles are estimated to be 1% of sales. Prepare the December 31 year-end adjusting entry for uncollectibles.

Bad Debts Expense $ 2740  Debit

Allowance for doubtful accounts $ 2740 Credit

Explanation:

Warner Company

Accounts receivable $105,000,

Allowance for doubtful accounts  $660 (credit),

Sales  $340,000

Uncollectibles are estimated to be 1% of sales.

Uncollectibles of 1% of sales means that after adjusting entry is passed the uncollectible amount must be $3400 ( 1% of $340,000) .

We have a credit balance of $ 660

The debit balance in the Allowance for doubtful accounts must be $ 3400.

The adjustment will be = $3400- $660= $ 2740

The Adjusting Entry will be

Bad Debts Expense $ 2740  Debit

Allowance for doubtful accounts $ 2740 Credit

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