At the end of 2020, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (debit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2020, to record its estimated uncollectible accounts included a: Credit to Allowance for Uncollectible Accounts of $12,000. Debit to Bad Debt Expense of $16,500. Credit to Allowance for Uncollectible Accounts of $16,500. Debit to Bad Debt Expense of $16,500; credit to Allowance for Uncollectible Accounts of $16,500.

The correct entry is shown below:

Explanation:

The journal entry to record the estimated balance of uncollectible accounts is as:

Bad debt expense A/cDr  $16,500

  Allowance for Uncollectible Accounts A/cCr   $16,500

Being the estimated amount of uncollectible accounts is recorded

The bad debt expense account is debited as there is increase in the expense so any increase in expense is debited, whereas the allowance for uncollectible accounts also increases which is credited.

Working Note:

Amount of uncollectible accounts which is estimated = Future uncollectible accounts + Debit balance of Allowance for Uncollectible Accounts

where

Future uncollectible accounts amounts to $12,500

Debit balance of Allowance for Uncollectible Accounts amounts to $4,500

Putting the values above:

Amount of uncollectible accounts which is estimated = $12,500 + $4,500

Amount of uncollectible accounts which is estimated = $16,500

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