Question

Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $127,500, and it estimates that 5% 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 $2,168 credit balance before the adjustment.(b) a $638 debit balance before the adjustment.

Answer 1

Answer:

Journal entries

(a)

Dr. Bad Debt Expense                         $4,207

Cr. Allowance for Doubtful Accounts $4,207

(b)

Dr. Bad Debt Expense                         $5,737

Cr. Allowance for Doubtful Accounts $5,737

Explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Closing Value of the Allowance for Doubtful Accounts will be as follow

Closing Balance = $127,500 x 5% = $6,375

(a)

As Allowance for Doubtful Accounts already have balance of $2,168, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $6,375 at the year end.

Adjustment Value = $6,375 - $2,168 = $4,207

(b)

As Allowance for Doubtful Accounts already have balance of $638, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $6,375 at the year end.

Adjustment Value = $6,375 - $638 = $5,737