Question

Kingbird, Inc. uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $390000 and credit sales are $1560000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Kingbird, Inc. make if the Allowance for Doubtful Accounts has a credit balance of $3900 before adjustment?

Answer 1

Step-by-step explanation:

Before passing the adjusting entry, first we have to compute the allowance for doubtful debts balance which is shown below:

= Accounts receivable × estimated percentage - credit balance

= $390,000 × 5% - $3,900

= $19,500 - $3,900

= $15,600

Now the adjusting entry would be shown below:

Bad debt A/c Dr $15,600

To Allowance for Doubtful Accounts A/c $15,600

(Being adjusting entry is recorded)