Answer:
(a) Debit Bad Debt Expense for $1,778; and Credit Allowance for Doubtful Accounts for $1,778.
(b) Debit Bad Debt Expense for $6,808; and Credit Allowance for Doubtful Accounts for $6,808.
Step-by-step explanation:
(a) Company estimates bad debts at 4% of accounts receivable
Estimated bad debt = Accounts Receivable * 4% of accounts receivable = $136,200 * 4% = $5,448
Bad Debt Expense = Estimated bad debt - Allowance for Doubtful Accounts = $5,448 - $3,670 = 1,778
The journal entries will now look as follows:
Particulars Debit ($) Credit ($)
Bad Debt Expense 1,778
Allowance for Doubtful Accounts 1,778
(To record bad debt expense.)
(b) Company estimates bad debts at 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,360 debit balance.
Bad debt expense = (Accounts Receivable * 4% of accounts receivable) + Allowance for Doubtful Accounts debit balance = ($136,200 * 4%) + $1,360 = $6,808
The journal entries will now look as follows:
Particulars Debit ($) Credit ($)
Bad Debt Expense 6,808
Allowance for Doubtful Accounts 6,808
(To record bad debt expense.)