In addition, its unadjusted trial balance includes the following items:

Required:

1. Prepare the adjusting entry for this company to recognize bad debts under each of the following index- pendent assumptions.

a. Bad debts are estimated to be 1.5% of credit sales.

b. Bad debts are estimated to be 1% of total sales.

c. An aging analysis estimates that 5% of year-end accounts receivable are uncollectible.

2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015, balance sheet gave the facts in part 1a.

3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015, balance sheet given the facts in part 1c.

Revelant knowledge

A bad debt is an account receivable that has not been paid by the customer. When credit is offered to customers, bad debts are possible. They occur when a business lends too much credit to a consumer who is unable to repay the debt, resulting in late, reduced, or missed payments.