Scenario

Sara Jones opened a technical consulting business called Hi-Tech For the Future earlier in the year. So far, she has been successful in providing services and selling ancillary products to clients.

Before the first advisory board meeting for the year, she realized that she needed to be better prepared in terms of reporting the financial status of the organization. Luckily, with your assistance, she was able to have valuable accounting information readily available for both internal and external reporting purposes. Now, as the company continues to grow, she is realizing that she needs to begin accounting for bad debts. Furthermore, her partners have introduced additional concerns.

Your Role/Assignment

You are still on board as an accounting consultant for Hi-Tech For the Future. Sara has tasked you with reviewing information and completing a few accounting items. Using the information provided, you will need to complete the assignment found in the Activity section of this week's You Decide tab.

Activity

You are still on board as an accounting consultant for Hi-Tech For the Future. Sara has tasked you with reviewing the following information and completing a the following accounting items:

Assume that Hi-Tech For the Future has total revenues of $43,853 during the first three months of 2010 and that the Accounts Receivable balance on March 31, 2010 is $22,720.

1. Prepare the adjusting entry needed for Hi-Tech to recognize bad debts expense on March 31, 2010 under each of the following independent assumptions (assuming a zero unadjusted balance in the Allowance for Doubtful Accounts at March 31).
a. bad debts are estimated to be 1% of total revenues.
b. bad debts are estimated to be 2% of accounts receivable.

2. Assume that Hi-Tech's Accounts Receivable balance at June 30 is $20,250 and that one account of $100 has been written off against the Allowance for Doubtful Accounts since March 31. If Sara uses the method under 1b, what adjusting journal entry must be made to recognize bad debts expense on June 30?

In addition to these tasks, you will need to address any concerns presented by Sara's partners.