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4 August, 01:20

Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $123,500, and it estimates that 3% 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 $2,100 credit balance before the adjustment. (b) a $618 debit balance before the adjustment

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  1. 4 August, 01:39
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    a. Before adjusting, the Allowance for Doubtful Accounts has a $2,100 credit balance.

    Debit Bad debts expense $1,605

    Credit Allowance for Doubtful Accounts $1,605

    b. Before adjusting, the Allowance for Doubtful Accounts has a $618 debit balance.

    Debit Bad debts expense $4,323

    Credit Allowance for Doubtful Accounts $4,323

    Explanation:

    Mazie Supply Co. uses the percent of accounts receivable method. It estimates that 3% will be uncollectible.

    Estimated uncollectible = 3% x $123,500 = $3,705

    a. Before adjusting, the Allowance for Doubtful Accounts has a $2,100 credit balance.

    Bad debts expense = $3,705 - $2,100 = $1,605

    The year-end adjusting entry:

    Debit Bad debts expense $1,605

    Credit Allowance for Doubtful Accounts $1,605

    b. Before adjusting, the Allowance for Doubtful Accounts has a $618 debit balance

    Bad debts expense = $3,705 + $618 = $4,323

    The year-end adjusting entry:

    Debit Bad debts expense $4,323

    Credit Allowance for Doubtful Accounts $4,323
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