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27 December, 12:33

Santana Rey, owner of Business Solutions, realizes that she needs to begin accounting for bad debts expense. Assume that Business Solutions has total revenues of $44,000 during the first three months of 2019, and that the Accounts Receivable balance on March 31, 2019, is $21,967. Prepare the adjusting entry needed for Business Solutions to recognize bad debts expense on March 31, 2019, under each of the following independent assumptions: (assume a zero unadjusted balance in the Allowance for Doubtful Accounts at March 31) (Round amounts to the nearest dollar) a) Bad debts are estimated to be 1% of total revenues. b) Bad debts are estimated to be 2% of accounts receivable.

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  1. 27 December, 15:35
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    The Journal entries are as follows:

    (a)

    Bad Debt Expense A/c Dr. $440

    To Allowance for Doubtful Accounts $440

    (To record the bad debts)

    Workings:

    Bad Debt Expense = 1% of Total revenue

    = 0.01 * $44,000

    = $440

    (b)

    Bad Debt Expense A/c Dr. $439.34

    To Allowance for Doubtful Accounts $439.34

    (To record the bad debts)

    Workings:

    Bad Debt Expense = 2% of accounts receivable

    = 0.02 * $21,967

    = $439.34
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