Prepare the adjusting entries to record estimated bad debts

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Reference no: EM132674135

Nezreth cosmetics Co. is undecided about which base to use in estimating uncollectible accounts. On December 31,20X2, the balance in account Receivable was Birr 800,000.00 and net credit sales amounted to Birr 1,500,000.00 during 20X2. An aging analysis of the account receivable indicated that Birr 12,000.00 in account are expected to be uncollectible. Past experience has shown that about ½ of 1% of net credit sales eventually are uncollectible.

Problem a: Prepare the adjusting entries to record estimated bad debts expense using the

1) Percentage of sales basis, and

2) The percentage of receivable basis under each of the following independent assumptions.

a) Allowance for Doubtful Accounts has a credit balance of birr 2,500 before adjustment.

b) Allowance for Doubtful accounts has a debit balance of Birr 600 before adjustment

Reference no: EM132674135

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