Question

Sunland Company uses the percentage-of-receivables basis to record bad debt expense. Accounts receivable (ending balance) $630,000 (debit) Allowance for doubtful accounts (unadjusted) 4,900 (debit) The company estimates that 2% of accounts receivable will become uncollectible. (a) Prepare the adjusting journal entry to record bad debt expense for the year. (Credit account titles are automatically indented when amount is entered. Do not indent manually.

Answer 1

The adjusting journal entry to record bad debt expense for the year:

Debit Bad debts expense $17,500

Credit Allowance for doubtful accounts $17,500

Step-by-step explanation:

Sunland Company uses the percentage-of-receivables basis to record bad debt expense and the company estimates that 2% of accounts receivable will become uncollectible.

Estimated uncollectible = 2% x $630,000 = $12,600

Before adjusting, Allowance for doubtful accounts has balance of $4,900 (debit).

Bad debts expense = $12,600 + $4,900 = $17,500

The adjusting journal entry:

Debit Bad debts expense $17,500

Credit Allowance for doubtful accounts $17,500