Question

Kingston Co. uses the percentage-of-receivables basis to record bad debt expense. It estimates that 1% of accounts receivable will become uncollectible. Accounts receivable are $420,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of $1,500. (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 $800 instead of a credit balance of $1,500, determine the amount to be reported for bad debt expense​

Answer 1

a. Dr Bad Debts Expense $2,700

Cr Allowance for doubtful accounts $2,700

b. $5000

Step-by-step explanation:

(a) Prepare the adjusting journal entry to record bad debt expense for the year.

Debit Bad Debts Expense [($420,000 x 1%) – $1,500] $2,700

Credit Allowance for doubtful accounts $2,700

(b) If the allowance for doubtful accounts had a debit balance of $800 instead of a credit balance of $1,500, determine the amount to be reported for bad debt expense​

Bad debt expense = $4200 + $800 = $5000