Question

At each calendar year-end, Mazie Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, it has outstanding accounts receivable of $113,500, and it estimates that 6% will be uncollectible. Prepare the adjusting entry to record bad debts expense for the year ended December 31 under the assumption that the Allowance for Doubtful Accounts has: (a) a $1,930 credit balance before the adjustment. (b) a $568 debit balance before the adjustment.

Answer 1

Journal entries

(a)

Dr. Bad Debt Expense $4,880

Cr. Allowance for Doubtful Accounts $4,880

(b)

Dr. Bad Debt Expense $7,378

Cr. Allowance for Doubtful Accounts $7,378

Step-by-step explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Closing Value of the Allowance for Doubtful Accounts will be as follow

Closing Balance = $113,500 x 6% = $6,810

(a)

As Allowance for Doubtful Accounts already have credit balance of $1,930 we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $6,810 at the year end.

Adjustment Value = $6,810 - $1,930 = $4,880

(b)

As Allowance for Doubtful Accounts already have debit balance of $568 we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $6,810 at the year end.

Adjustment Value = $6810 + $568 = $7,378