Question: At December 31, 2011, Ethan Company reports the following results for its calendar-year.
Cash sales . . . . . . . . . . $1,803,750
Credit sales . . . . . . . . . 3,534,000
In addition, its unadjusted trial balance includes the following items.
Accounts receivable . . . . . . . . . . . . . . . . . . . $1,070,100 debit
Allowance for doubtful accounts . . . . . . . . . 15,750 debit
Required: 1. Prepare the adjusting entry for this company to recognize bad debts under each of the following independent assumptions.
a. Bad debts are estimated to be 2% of credit sales.
b. Bad debts are estimated to be 1% of total sales.
c. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2011, balance sheet given the facts in part 1a.
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2011, balance sheet given the facts in part 1c.