Question

Cheyenne Corp. uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $270000 and credit sales are $1080000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Cheyenne Corp. make if the Allowance for Doubtful Accounts has a credit balance of $2700 before adjustment

Answer 1

Dr Bad Debts Expense 10,800

Cr Allowance for Doubtful Accounts 10,800

Step-by-step explanation:

The Allowance for Doubtful Accounts needs an ending credit balance of 5% of $270,000 or $13,500. Since the preadjusted credit balance is $2,700, a credit of $10,800 will increase it to $13,500.

Cheyenne Corp. Journal entry

Dr Bad Debts Expense 10,800

Cr Allowance for Doubtful Accounts 10,800