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Chapter 8: 16RQ (page 465)

How does the percent-of-sales method compute bad debts expense?

Short Answer

Expert verified

The formula used for the calculation of bad debt under the percent-of-sales method:

Baddebtexpenses=Netcreditsales脳estimatedpercentageofbaddebts

Step by step solution

01

Step 1: Definition of Bad Debt Expenses

A business entity鈥檚 expenses for reporting the accounts receivables that are uncollectible are known as bad debt expenses. Such expenses are deducted from the receivables.

02

Calculation of bad debts expenses using the percent of sales method

The business entity determines the bad debt expenses by taking the product of the net credit sales and the estimated percentage of bad debts. The estimated percentage depends upon the historical data on bad debts.

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Most popular questions from this chapter

What is the difference between accounts receivable and notes receivable?

On August 1, Taylor Company lent $80,000 to L. King on a 90-day, 5% note.

12. Journalize for Taylor Company the lending of the money on August 1.

13. Journalize the collection of the principal and interest at maturity. Specify the date. Round interest to the nearest dollar.

Question: McKale Corporation has a three-month, $18,000, 9% note receivable from L. Peters that was signed on June 1, 2018. Peters defaults on the loan on September 1.

Journalize the entry for McKale to record the default of the loan

What is the difference between the percent-of-receivables and aging-of-receivables methods?

Accounting for notes receivable and accruing interestCarley Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term

(1) Apr. 1 $ 6,000 7% 1 year

(2) Sep. 30 12,000 6% 6 months

(3) Sep. 19 18,000 8% 90 days

Requirements

1. Determine the maturity date and maturity value of each note.

2. Journalize the entries to establish each Note Receivable and to record the collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31, 2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.
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