A Company Had the Following Items and Amounts in Its

question 81

Essay

A company had the following items and amounts in its unadjusted trial balance as of December 31 of the current year:
$$\begin{array} { | l | r | r | } \hline & \text { Debit } &{ \text { Credit } } \\\hline \text { Cash sales } & & \$ 88,000 \\\hline \text { Credit sales } & &2 7 5 , 0 0 0 \\\hline \text { Accounts receivable } & \$ 96,000 & \\\hline \text { Allowance for doubtful accounts } & & 1,000 \\\hline\end{array}$$
Prepare the adjusting entry to estimate bad debts under each of the following separate situations.
1.Bad debts are estimated to be 2.5% of credit sales.
2.An aging analysis estimates that 8% of the outstanding accounts receivable will be uncollectible.

---

Definitions:

Overapplied Manufacturing Overhead

The condition wherein the overhead allocated during the production process exceeds the actual overhead costs incurred.

Predetermined Overhead Rate

This rate is calculated before a period begins and is used to allocate overhead costs to products based on a chosen activity base.

Gross Margin

The difference between sales revenue and the cost of goods sold, representing the fundamental profitability of the goods or services sold.

Manufacturing Overhead

All indirect costs associated with the production process, including utilities, maintenance, and salaries of production managers, not directly attributable to a specific product.