Answer:
Assumption 1: Bad debts are estimated to be 4% of credit sales.
=> Bad debt expense: 3,070,000 x 4% -22,420 = $100,380
Dr Bad Debt Expenses $100,380
Cr Allowance for doubtful account $100,380
Assumption 2: Bad debts are estimated to be 3% of total sales.
=> Bad debt expense: (Cash sales + Credit sales) x 3% = ( 1,883,940 + 3,070,000) x 3% - 22,420 = $126,198.2
Dr Bad Debt Expenses $126,198.2
Cr Allowance for doubtful account $126,198.2
Assumption 3: An aging analysis estimates that 7% of year-end accounts receivable are uncollectible.
=> Bad debt expense: 930,210 x 7% - 22,420 = $42,694.7
Dr Bad Debt Expenses $42,694.7
Cr Allowance for doubtful account $42,694.7
Explanation:
Explanation has been given in each assumption.
