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:

Richard M Nixon

The 37th President of the United States, serving from 1969 until his resignation in 1974, primarily known for his involvement in the Watergate scandal.

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A term used to describe a state that is officially governed by the people or their elected representatives, often used by communist countries.

Salvador Allende

The first Marxist to become president of a Latin American country through open elections, serving as President of Chile from 1970 until his death in 1973.