On December 31, 2019, Rainbow Appliances Has $275,000 in Accounts

question 8

Essay

On December 31, 2019, Rainbow Appliances has $275,000 in accounts receivable and an allowance account with a debit balance of $320. Current period net credit sales were $780,000, and cash sales were $68,000.
a)Rainbow Appliances performs an aging schedule, and the results are summarized below, along with the appropriate percentages that Rainbow applies to the categories shown. $$\begin{array}{l}\begin{array} { l c c } &&\text { Percentage }\\\text { Days Outstanding } & \text { Amount } & \text { Uncollectible } \\\text { Not yet due } & \$ 150,000 & 1 \% \\31 - 60 \text { days past due } & 50,000 & 5 \% \\61 - 90 \text { days past due } & 40,000 & 10 \% \\91 - 120 \text { days past due } & 25,000 & 25 \% \\\text { Over } 120 \text { days past due } & 10,000 & 50 \%\end{array}\end{array}$$ Assuming Rainbow uses the aging approach of accounting for uncollectible accounts, prepare the adjusting entry required at the end of the accounting period.
b)Assume now Rainbow uses the percent-of-sales method of accounting for uncollectible accounts. If historical data indicate that approximately 3% of net credit sales are uncollectible, what is the amount of bad-debt expense and what is the balance in the allowance for doubtful accounts after adjustment?

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