Question

This question is already done in textbook. But the numbers in this problem are slightly different to textbook problem.

So, I can't refer textbook solution.

Problem 9-3A At December 31, 2015, Ethan Company reports the following results for its calendar year. Cash sales .......... Credit sales ......... $1,803,750 3,534,000 In addition, its unadjusted trial balance includes the following items. Accounts receivable ... Allowance for doubtful accounts ......... $1,070.100 debit 15,750 debit There was objective evidence that 10% of a $150,000 debt owed by a debtor, Nathan Company, would most probably be uncollectible. An aging analysis of the rest of the accounts receivables indicated that an estimated 5% of these accounts would not be collectible. Required 1. Prepare the adjusting entry for this company to recognize bad debts. 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015 statement of financial position.

Answer 1

1)

	Debit	Credit
Bad Debts Expense	69,255.00
Allowance for doubtful debts		69,255.00

Working Note-

Unadjusted balance	15,750.00	Debit
Estimated balance (1,070,100 x 5%)	53,505.00	Credit
Required adjustment	69,255.00	Credit

2)

Current Assets :
Accounts Receivable	1,070,100.00
Less: Allowance for doubtful debts	-       76,717.00	993,383.00