Megan's Products Is Undecided About Which Base to Use in Estimating

question 37

Essay

Megan's Products is undecided about which base to use in estimating uncollectible accounts. On December 31 2016 the balance in Accounts Receivable was $308000 and net credit sales amounted to $2700000 during 2016. An aging analysis of the accounts receivable indicated that $31000 in accounts are expected to be uncollectible. Past experience has shown that about 1% of net credit sales eventually are uncollectible.
Instructions
Prepare the adjusting entries to record estimated bad debt expense using the (1) percentage of sales basis and (2) the percentage of receivables basis under each of the following independent assumptions:
(a) Allowance for Doubtful Accounts has a credit balance of $2300 before adjustment.
(b) Allowance for Doubtful Accounts has a debit balance of $370 before adjustment.

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Definitions:

Japan

An island country located in East Asia, known for its rich culture, technological advancements, and historical significance.

China

A country located in East Asia, known for being the most populous nation in the world and having one of the largest economies globally.

Imbalance of Trade

A situation where the value of a country's imports and exports is not equal, leading to a trade surplus or deficit.

Exceeded

means to go beyond an established limit or surpass a certain standard or level.