Question

Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $87,000, and it estimates that 4% will be uncollectible. Prepare the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has: (a) a $1,479 credit balance before the adjustment. (b) a $435 debit balance before the adjustment.

Answer 1

a. Balance in the allowance doubtful account = $1,479 (Credit)

Allowance for doubtful accounts to be maintained = 4% of the accounts receivables = 4% * $87,000 = $3,480

Net amount of bad debt to be recorded = $3,480 - $1,479 = $2,001

Date Account titles and explanation Debit Credit

Bad debt expenses $2,001

Allowance for doubtful accounts $2,001

(To record entry of bad debt expenses)

b. Balance in the allowance doubtful account = $435 (Debit)

Allowance for doubtful accounts to be maintained = 4% of the accounts receivables = 4% * $87,000 = $3,480

Net amount of bad debt to be recorded = $3,480 + $435 = $3,915

Date Account titles and explanation Debit Credit

Bad debt expenses $3,915

Allowance for doubtful accounts $3,915

(To record entry of bad debt expenses)