The preparation of the journal entries assuming that the estimate of uncollectible accounts is as follows:
<h3>Journal Entries:</h3>
<u>a. 4% of accounts receivable</u>
Debit Bad Debts Expense $31,300
Credit Allowance for Doubtful Accounts $31,300
- To record the bad debts expense for the period.
<u>b. 2% of net sales</u>
Debit Bad Debts Expense $13,800
Credit Allowance for Doubtful Accounts $13,800
- To record the bad debts expense for the period.
<h3>Data and Calculations:</h3>
Debit Credit
Accounts receivable $180,000
Allowance for doubtful accounts 3,500
Sales returns and allowances 25,000
Credit Sales $540,000
Net sales = $515,000 ($540,000 - $25,000)
<h3>Adjustment Analysis:</h3>
a. 4% of accounts receivable
Ending balance of Allowance for doubtful accounts = $27,800 {($180,000 - $25,000 + $540,000) x 4%}
Bad Debts Expense = $31,300 ($3,500 + $27,800)
<h3 />
Bad Debts Expense $31,300 Allowance for Doubtful Accounts $31,300
b. 2% of net sales
Ending balance of Allowance for doubtful accounts = $10,300 ($515,000 x 2%)
Bad Debts Expense = $13,800 ($3,500 + $10,300)
<h3 />
Bad Debts Expense $13,800 Allowance for Doubtful Accounts $13,800
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