(SHOW ALL MATH/COMPUTATIONS WHEREVER APPROPRIATE_

PART I (12 points)

The financial records of Red Inc. reveal the following for the current year:

- Total sales were $600,000, sales returns were $15,000.

- Accounts Receivable balance at year end was $250,000.

- An aging schedule indicates that $7,500 of the accounts receivable will eventually be uncollectible.

a) Prepare an adjusting entry to record estimated credit losses if the Allowance for Doubtful Accounts

has a credit balance before adjustment of $2,500.

b) Prepare an adjusting entry to record estimated credit losses if the Allowance for Doubtful Accounts

has a debit balance before adjustment of $2,000.