Question

At December 31, Folgeys Coffee Company reports the following results for its calendar year.

Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(900,000

Credit sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000

Its year-end unadjusted trial balance includes the following items.

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . \)125,000 debit

Allowance for doubtful accounts . . . . . . . . . . . . . . . . 5,000 debit

a. Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be 3% of credit sales.

Short answer

The amount of bad debt for which the entry will be passed is $9,000.

Step-by-step solution

Journal entry

Date	Particulars	Debit	Credit
a	Bad debt expense	$9,000
	Allowance for doubtful accounts		$9,000
	(To record the bad debt)

Working notes

$\begin{array}{rcl}\mathbf{Baddebtexpense}& \mathbf{=}& \mathbf{Creditsales}\mathbf{\times }\mathbf{Percentageofuncollectibles}\\ & \mathbf{=}& \mathbf{\$}\mathbf{300}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{3}}{\mathbf{100}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{9}\mathbf{,}\mathbf{000}\end{array}$