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24 July, 21:50

Marigold Corp. uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $120000 and credit sales are $1210000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Marigold Corp. make if the Allowance for Doubtful Accounts has a credit balance of $1200 before adjustment?

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  1. 24 July, 22:13
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    The journal entry for the following is shown below:

    Explanation:

    The journal entry for the following is as follows:

    Bad Debts Expense A/c ... Dr $3,600

    Allowance for Doubtful Accounts A/c ... Cr $3,600

    Being the adjusting entry for bad debt expense

    Working Note:

    Using the percentage of accounts receivable computing the amount of bad debt expense as:

    Allowance for doubtful accounts = Accounts receivable * %

    = $120,000 * 4%

    = $4,800

    Now, computing the bade debt expense as:

    Bad debt expense = Allowance for doubtful debts - Credit balance

    = $4,800 - $1200

    = $3,600
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