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 acounts:
Accounts Receivable - $575,000 debit balance
Allowance for doubtful accounts - $7500 credit balance
A. Prepare the adjusting entry for LBI, Incorporated to recognize bad debts under each of the following independent 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. 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.