Question

Mazie Supply Company uses the percent of accounts receivable method to determine their Allowance for Uncollectible Accounts. On December 31, it has outstanding accounts receivable of $55,000, and it estimates that 2% will be uncollectible. Prepare the year-end adjusting entry to record bad debt expense under the assumption that the Allowance for Uncollectible Accounts has (a) a $415 credit balance before the adjusting entry and (b) a $291 debit balance before the adjusting entry.

Answer 1

A. Dr Bad debts expense $685

Cr Allowance for doubtful accounts $685

B. Dr Bad debts expense $1,391

Cr Allowance for doubtful accounts $1,391

Step-by-step explanation:

A. Preparation of the year-end adjusting entry to record bad debt expense if the Allowance for Uncollectible Accounts has a $415 credit balance before the adjusting entry

Dr Bad debts expense $685

Cr Allowance for doubtful accounts $685

[(2%*$55,000)-$415]

($1100-$415)

B. Preparation of the year-end adjusting entry to record bad debt expense if the Allowance for Uncollectible Accounts has a $291 debit balance before the adjusting entry

Dr Bad debts expense $1,391

Cr Allowance for doubtful accounts $1,391

[(2%*$55,000)+$291]

($1100+$291)