Question

Sunland Company uses the percentage-of-receivables basis to record bad debt expense and concludes that 3% of accounts receivable will become uncollectible. Accounts receivable are $435,700 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,653. (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 $827 instead of a credit balance of $2,653, prepare the adjusting journal entry for bad debt expense.

Answer 1

Provided Below

Step-by-step explanation:

Journal entries

(a)

Date General Journal DEBIT ($) CREDIT ($)

Bad Debt Expense 10,418.00

Allowance for Bad Debts 10,418.00

(b)

Date General Journal DEBIT ($) CREDIT ($)

Bad Debt Expense 13,898.00

Allowance for Bad Debts 13,898.00

Explanation

(a) 3% of accounts receivable uncollectible = $435,700*3% = $13,071

Credit balance of allowance for doubtful accounts = $2,653

Hence, Bad Debt Expense = 13,071 - 2,653 = $10,418

(b) 3% of accounts receivable uncollectible = $435,700*3% = $13,071

Debit balance of allowance for doubtful accounts = $827

Hence, Bad Debt Expense = 13,071 + 827 = $13,898