Reference no: EM133018354

Question - The ledger of Blue Bag Company at the end of the current year shows: Accounts Receivable $200,000, Sales Revenue $1,400,000, and Sales Returns and Allowances $50,000.

Required -

(a) If Company uses the direct write-off method to account for uncollectible accounts, journalize the adjusting entry at December 31, assuming Company determines that Barking Ghosts Company's $2,400 balance is uncollectible.

(b) If Allowance for Doubtful Accounts has a credit balance of $3,500 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts receivable.

(c) If Allowance for Doubtful Accounts has a debit balance of $370 in the trial balance, journalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts receivable.

(d) Why is the allowance method required by GAAP?