Exercise 7-5 Percent of accounts receivable method LO P2 At each calendar year-e

Question

Exercise 7-5 Percent of accounts receivable method LO P2 At each calendar year-end, Mazie Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, 2016, it has outstanding accounts receivable of $123,500, and it estimates that 5% will be uncollectible. Prepare the adjusting entry to record bad debts expense for year 2016 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.

Explanation / Answer

Uncollectoble amount=5%*123500=6175
a) already 2100 credit balance is there so required more =6175-2100=4075
bad debt expense(db) 4075
allowance for doubtful accounts(cr) 4075
b)618 debit balance so required=6175+618=6793
bad debt expense(db) 6793
allowance for doubtful accounts(cr) 6793

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