At december 31, folgeys coffee company reports the following results for its calendar year. cash sales $ 900,000 credit sales 300,000 its year-end unadjusted trial balance includes the following items. accounts receivable $ 125,000 debit allowance for doubtful accounts 5,000 debit prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be (a) 3% of credit sales, (b) 1% of total sales and (c) 6% of year-end accounts receivable.

A)

bad debt expense 9,000 debit

     allowace for doubtful account 9,000 credit

to record bad debt expense ---

B)

bad debt expense 9,000 debit

     allowace for doubtful account 9,000 credit

to record bad debt expense ---

C)

bad debt expense 12,500 debit

     allowace for doubtful account 12,500 credit

to record bad debt expense ---

Explanation:

a) 3% of credit sales

300,000 x 3% = 9,000

full value

b) 1% total sales

900,000 x 1% = 9,000

c)

125,000 x 6% = 7,500

we adjust to leave the year-end allowance at this value

  allowance

debit       credit

5,000

              7,500

the allowance wil be 7,500 + 5,000 = 12,500

The correct answer are $9,000, $12,000 and $12,500 respectively

Question A:

At December 31:  

Bad expenses account Dr $9,000

 Allowance for doubtful account $9,000

To record the bad expense

To calculate the bad expense, you should multiply credit sales by the percentage of uncontrollable estimates. This can be expressed as:

Credit sales x percentage of uncontrollable estimates

From the given question:

If you substitute the value, then you have:

$300,000 x 3%

= $9,000.

Question B:

At December 31:

Bad expenses account Dr $12,000

 Allowance for doubtful accounts $12,000

To record the bad expense

Here, you should add the cash sale and credit sales and multiply the derived value with the percentage of uncontrollable estimates. These can be expressed as:

(Cash sales + Credit sales) x percentage of uncontrollable estimates

From the given question:

If you substitute the value, you have:

($900,000 + $300,000) × 1%

= $12,000

Question C:

Bad debt expense Dr $12,500

    To Allowance for doubtful debts $12,500

To record the bad expense

Here, you should add the allowance for doubtful accounts with the value derived from Multiplying account receivable and percentage of uncontrollable estimates.  This can be expressed as:

Allowance for doubtful accounts + (Accounts receivable × percentage of uncontrollable estimates)

From the given question,  

If you substitute the value, you have:

$5,000 + ($125,000 × 6%)

$5,000 + $7,500

= $12,500

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