Question

Wildhorse Co. uses the percentage-of-receivables basis to record bad debt expense and concludes that 3% of accounts receivable will become uncollectible. Accounts receivable are $382,600 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,613. (a) Prepare the adjusting journal entry to record bad debt expense for the year. (b) If the allowance for doubtful accounts had a debit balance of $903 instead of a credit balance of $2,613, prepare the adjusting journal entry for bad debt expense. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit (a) Enter an account title Enter a debit amount Enter a credit amount Enter an account title Enter a debit amount Enter a credit amount (b) Enter an account title Enter a debit amount Enter a credit amount Enter an account title Enter a debit amount Enter a credit amount

Answer 1

To record bad debt expense using the percentage-of-receivables basis, calculate the amount of bad debt expense based on the estimated uncollectible accounts receivable. The adjusting journal entry for bad debt expense is different if the allowance for doubtful accounts has a debit balance.

Step-by-step explanation:

To record bad debt expense using the percentage-of-receivables basis, you need to calculate the amount of bad debt expense based on the percentage of accounts receivable that is estimated to become uncollectible. In this case, the accounts receivable is $382,600 and the estimated uncollectible amount is 3%, so the bad debt expense is $11,478 (382,600 * 0.03). To adjust the allowance for doubtful accounts, you need to subtract the existing credit balance of $2,613 and add the bad debt expense of $11,478, resulting in a new credit balance of $8,865 (2,613 - 11,478).

(a) The adjusting journal entry to record bad debt expense for the year is:

Account Titles Debit Credit

Bad Debt Expense 11,478
Allowance for Doubtful Accounts 11,478

(b) If the allowance for doubtful accounts had a debit balance of $903 instead of a credit balance of $2,613, the adjusting journal entry for bad debt expense would be:

Account Titles Debit Credit

Bad Debt Expense 8,865
Allowance for Doubtful Accounts 8,865