27 May, 10:08

# Scott's Plumbing Company uses the allowance method and uses the percent of credit sales method of estimating uncollectible accounts expense. Based on past history and industry averages, ¾% of credit sales are expected to be uncollectible. The Company recorded \$3,500,000 of credit sales and \$1,000,000 in cash sales during the year. At December 31, the balance of accounts receivable was \$250,000 and the allowance for doubtful accounts had a credit balance of \$3,500.

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1. 27 May, 12:40
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Cr Allowance for doubtful accounts 22,750

Explanation:

Scott's Plumbing sold \$3,500,000 on account, and it estimates that 0.75% of that amount will be bad debt.

total bad debt expense for the year = \$3,500,000 x 0.75% = \$26,250

by December 31, the company had a credit balance of \$3,500 in allowance for doubtful accounts, so it was \$26,250 - \$3,500 = \$22,750 short

Cr Allowance for doubtful accounts 22,750
2. 27 May, 13:23
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At the year end the Allowance for Doubtful accounts will have a debit balance of \$3,500,000-\$ 2625000=\$ 625000

Required Adjustment in the Allowance for doubtful accounts = \$ 2621500

Explanation:

Scott's Plumbing Company

¾% of credit sales are expected to be uncollectible

Allowance for doubtful accounts=¾% of \$3,500,000 = \$ 2625000

Allowance for doubtful accounts = \$3,500 Credit

Required Adjustment in the Allowance for doubtful accounts = \$ 2621500

Credit Sales \$3,500,000

Accounts receivable \$250,000