Part -A

• At year-end (December 31), Double-Y Co. estimates its bad debts as 1% of its annual credit sales of $800,000. Double-Y records its bad debts expense for that estimate. (1 marks)
• On the following March 10, Double-Y decides that the $2,500 account of Clips Co. is uncollectible and writes it off as a bad debt. (1 mark)
• On May 25, Clips Co. unexpectedly pays the amount previously written off. (1 mark)

Required:

Prepare the journal entries of Double-Y Co. to record these transactions and events of December 31, March 10, and May 25.

Part B

At each calendar year-end, Fahad Electric Co. uses the percent of accounts receivable method to estimate bad debts.

• On December 31, 2019, it has outstanding accounts receivable of $500,000, and it estimates that 1.5% will be uncollectible. (1 marks)

Required:

Prepare the adjusting entry to record bad debts expense for year 2019 under the assumption that the Allowance for Doubtful Accounts has a $3,000 debit balance before the adjustment.

Part C

There are two methods of accounting for bad debts including direct write-off method and allowance method.

Required:

Write down an advantage of using the allowance method of accounting for bad debts. (1 mark)