Q1 (12%) A trial balance before adjustment included the following:

Debit Credit

Accounts receivable $80,000

Allowance for doubtful accounts 550

Sales $340,000

Sales returns and allowances 10,000

a) Prepare the journal entries assuming that the estimate of uncollectibles is determined by taking (1) 5% of gross accounts receivable and (2) 1% of net sales.

b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $550 instead of a credit balance. How will this difference affect the journal entries in part (a)?