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:

Obedience

The act of following orders or directions from authority, or conforming to rules or laws.

Bystander Effect

In social psychology, this refers to the occurrence where people are less inclined to provide aid to someone in distress if there are others present.

Social Loafing

The tendency for individuals to exert less effort when working in a group than when working alone.

Illusory Correlation

Illusory correlation is the cognitive bias of perceiving a relationship between variables, typically events or behaviors, even when no such relationship exists.