Question

Ranch Company uses the allowance method of handling its credit losses. It estimates credit losses at 2.5 percent of credit sales, which were $2,700,000 during the year. On December 31, the Accounts Receivable balance was $475,000, and the Allowance for Doubtful Accounts had a credit balance of $30,600 before adjustment.

1. Prepare the adjusting entry to record the credit losses for the year.
   
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear in the December 31 balance sheet.

Answer 1

Journal Entries Post Account Title and Explaination Debit Date Сredit Ref. Bad Debts Expense ($2,700,000 x 2.5%) Allowance for Doubtful Accounts Dec.31 67,500.00 67,500.00 (To record adjusting entry for estimated credit losses)

Determination of Balances of Accounts Receivables and Allowance for Uncollectible accounts Balance Sheet Current Assets: Accounts Receivable $475,000.00 Less: Allowance for Doubtful 30600 Add: Current Year Allownce 67500 (98,100.00) Accounts Receivable S376,900.00