The Percentage of Receivables Approach to Estimating Bad Debts Expense

question 63

Essay

The percentage of receivables approach to estimating bad debts expense is used by Hayes Company. On February 28, the firm had accounts receivable in the amount of $585,000 and Allowance for Doubtful Accounts had a credit balance of $370 before adjustment. Net credit sales for February amounted to $3,000,000. The credit manager estimated that uncollectible accounts would amount to 5% of accounts receivable. On March 10, an accounts receivable from Mark Dole for $2,100 was determined to be uncollectible and written off. However, on March 31, Dole received an inheritance and immediately paid his past due account in full.
(a) Prepare the journal entries made by Hayes Company on the following dates:
1. February 28
2. March 10
3. March 31
(b) Assume no other transactions occurred that affected the allowance account during March. Determine the balance of Allowance for Doubtful Accounts at March 31.

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Definitions:

Robert Agnew

An American criminologist known for the development of the General Strain Theory, which suggests that individuals who experience strain or stress are more likely to commit crimes.

Positively Valued Stimuli

Stimuli that are perceived as desirable or beneficial, evoking positive responses from individuals.

Differential Illegitimate Opportunity

A concept within criminology that explains variations in the rates of deviance among different social groups due to unequal access to legitimate means of achieving success.

Anomie-Strain Theory

A concept in criminology that explores the disconnect between societal goals and the availability of legitimate means to achieve those goals, leading to deviance.