Question

Exercise 7-7 Percent of accounts receivable method LO P3 

Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $114,500, and it estimates that 4% 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 $1,947 credit balance before the adjustment.

 (b) a $573 debit balance before the adjustment. 

Answer 1

Transaction	General Journal	Debit	Credit
(a)	Bad Debt Expense          [($114,500 x 4%) - $1,947]	$2,633
	Allowance for Doubtful Accounts		$2,633
	(To record bad debt expense)
Transaction	General Journal	Debit	Credit
(b)	Bad Debt Expense              [($114,500 x 4%) + $573]	$5,153
	Allowance for Doubtful Accounts		$5,153
	(To record bad debt expense)