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:

Motivation

Stimulation and inspiration to move; the leadership task of mobilizing people with different ideas, skills, and values to achieve a common mission; the experience of physical and emotional needs, progressing from basic needs for survival and security, to social needs for belonging and respect, to the complex need for fulfillment. See energize and empowerment.

Honesty

A moral character trait that involves being truthful, transparent, and free from deceit or theft.

Empowerment

The process of giving power or authority to individuals or groups, enabling them to make decisions, take actions, and control their own destinies.