Question 6.3 (Total: 15 marks; 5 marks per part)

Munchener Corp.s unadjusted trial balance includes the following balances:

	Dr.	Cr.
Accounts receivable	$150,000
Allowance for doubtful accounts		$ 3,500
Sales (all on credit)		720,000
Sales returns and allowances	30,000

Required

1. Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (a) 5% of gross accounts receivable and (b) 2% of net sales.

2. Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $3,500 instead of a credit balance.