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2 November, 10:01

Blue Spruce Corp. uses the percentage-of-receivables basis to record bad debt expense and concludes that 2% of accounts receivable will become uncollectible. Accounts receivable are $402,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,723. Prepare the adjusting journal entry to record bad debt expense for the year.

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  1. 2 November, 13:36
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    The adjusting journal entry would be:

    Debit: Bad debts expense $5,317

    Credit: Allowance for Doubtful Accounts $5,317

    Explanation:

    Debit: Bad debts expense $5,317

    Credit: Allowance for Doubtful Accounts $5,317

    Explanation of the entry:

    Allowance for doubtful debts at the end of the year = $402,000 * 2% = $8,040

    Credit balance at the start = $2,723

    Allowance for doubtful accounts = $8,040 - $2,723 = $5,317

    The Allowance for Doubtful Accounts presently has a credit balance of $2,723 and allowance for doubtful debt at the end of year is $8,040, you need to enter an additional credit amount of $5,317 into the Allowance for Doubtful Accounts. The other part of this adjusting entry will be a debit of $5,317 to Bad Debts Expense.
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