Answer:
b. Bad Debt Expense $26,880 Allowance for Doubtful Accounts $26,880
Step-by-step explanation:
The journal entry to record the transaction is as follows:
Debit Bad Debt Expense $26,880
Credit Allowance for Doubtful Accounts $26,880
Calculation: As the allowance of 8% will be uncollected because of the outstanding receivables, the total uncollectible is = $366,000 × 8% = $29,280.
As allowance for Doubtful Accounts has a credit balance of $2,400 before adjustment, which is a contra-entry and also a positive balance, we have to deduct this balance from $29,280 to determine the bad debt expense.
Therefore, $29,280 - $2,400 = $26,880.
Therefore, option B is correct.