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

b. Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be 1% of total sales.

Short answer

The amount of bad debtwhen the organization estimates its uncollectible to be 1% of the total sales will be $12,000.

Step-by-step solution

Journal entry

Date	Particulars	Debit	Credit
b	Bad debt expense	$12,000
	Allowance for doubtful accounts		$12,000
	(To record the bad debt expense)

Working notes

$\begin{array}{rcl}\mathrm{Bad}\mathrm{debt}\mathrm{expense}& =& \left[\left(\mathrm{Credit}\mathrm{sales}+\mathrm{Cash}\mathrm{sales}\right)\times \mathrm{Percentage}\mathrm{of}\mathrm{uncollectible}\right]\\ & =& \left[\left(\$900,000+\$300,000\right)\times \frac{1}{100}\right]\\ & =& \$12,000\end{array}$