The Following Information Is Provided: Required

question 3

Essay

The following information is provided: Required:
a. Prepare the adjusting entry if bad debts are estimated to be 1.5% of net sales.
b. Compute the amount of the adjusting entry if bad debts are estimated to be 3% of ending accounts receivable.

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Definitions:

Looting

In corporation law, the transfer of a corporation’s assets to its managers or controlling shareholders at less than fair value.

Debt-To-Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Corporate Veil

A legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company's debts and obligations.

Thin Capitalization

In corporation law, a ground for piercing the corporate veil due to the shareholders’ contributing too little capital to the corporation in relation to its needs.