Swifty Corporation uses the percentage-of-receivables basis to record bad debt e

Question

Swifty Corporation uses the percentage-of-receivables basis to record bad debt expense and concludes that 4% of accounts receivable will become uncollectible. Accounts receivable are $417,800 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,657.

(a) Prepare the adjusting journal entry to record bad debt expense for the year.

(b) If the allowance for doubtful accounts had a debit balance of $932 instead of a credit balance of $2,657, prepare the adjusting journal entry for bad debt expense.

Explanation / Answer

Allowance of doubtful accounts $16712($417800 * 4%)

a.

Bad debts expense $14055

To allowance of doubtful accounts $14055

b.

Baddebt expense $17644

To allowance of doubtful accounts $17644.

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