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22 April, 13:58

Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $63,500, and it estimates that 6% will be uncollectible. Prepare the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has: (a) a $1,080 credit balance before the adjustment. (b) a $318 debit balance before the adjustment.

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  1. 22 April, 16:07
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    The journal entries are as follows:

    (a) A $1,080 credit balance before the adjustment.

    Bad Debt Expense A/c Dr. $2,730

    To Allowance for Doubtful Accounts $2,730

    (To record the bad debt expense)

    Workings:

    The credit balance of allowance for doubtful accounts will be deducted from the uncollectible accounts.

    Bad Debt Expense:

    = Uncollectible - Credit balance

    = (6% * $63,500) - $1,080

    = $3,810 - $1,080

    = $2,730

    (b) A $318 debit balance before the adjustment.

    Bad Debt Expense A/c Dr. $4,128

    To Allowance for Doubtful Accounts $4,128

    (To record the bad debt expense)

    Workings:

    The debit balance of allowance for doubtful accounts will be added to the uncollectible accounts.

    Bad Debt Expense:

    = Uncollectible + Debit balance

    = (6% * $63,500) + $318

    = $3,810 + $318

    = $4,128
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