On December 31, 20XX, LBI,
Incorporated’s records indicate the following sales results for the
year:
Cash sales: $1,025,000
Credit sales: $1,342,000
In addition, its unadjusted trial
balance at December 31, 20XX includes the following accounts:
Account receivable: $575,000 debit
balance
Allowance for doubtful accounts:
$7,500 credit balance
A. Prepare the adjusting entry for
LBI, Incorporated to recognize bad debts under each of the
followingAfA?Ac€A!
“text decoration:underline;”>independent
AfA?Ac€A! assumptions:
a. Bad debts are estimated to be 2.5%
of credit sales.
b. Bad debts are estimated to be 1.5%
of total sales.
c. 6% of accounts receivable at
year end are uncollectible.
d. Show the December 31, 20XX balance
sheet presentation of the Company’s accounts receivable and related
accounts for part (a) above.
B. Assume the LBI’s accounts
receivable balance $575,000, with no allowance for doubtful
accounts, and uses the direct write off method of accounting for
uncollectible accounts receivable. AfA?Ac€A! A review of the
Company’s December 31, 20XX accounts receivable revealed that
accounts totaling $19,975 would not be collected.
a. Prepare the adjusting entry to
recognize bad debts under this assumption.
b. Show the December 31, 20XX balance
sheet presentation of the Company’s accounts receivable and related
accounts for this assumption.