Calculate the balance in allowance for doubtful accounts

Response to the following problem:

Sather Ltd. had the following unadjusted account balances at December 31, 2015:

Accounts Receivable                          \$150,000

Allowance for Doubtful Accounts          3,000

Sales                                                750,000

Required:

1. Assume that Sather Ltd. estimated its uncollectible accounts at December 31, 2015 to be two per cent of sales.

a. Prepare the appropriate adjusting entry to record the estimated uncollectible accounts at December 31, 2015.

b. Calculate the balance in the Allowance for Doubtful Accounts account after posting the adjusting entry.

2. Assume that Sather Ltd. estimated its uncollectible accounts at December 31, 2015 to be ten per cent of the net accounts receivable balance.

a. Prepare the appropriate adjusting entry to record the estimated uncollectible accounts at December 31, 2015.

b. Calculate the balance in the Allowance for Doubtful Accounts account after posting the adjusting entry.

3. Why is there a difference in the calculated estimates of doubtful accounts in questions 1 and 2?

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