Marigold Corp. uses the percentage-of-receivables basis to record bad debt expense and concludes that 3% of accounts receivable will become uncollectible. Accounts receivable are $416,900 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,545. (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 $950 instead of a credit balance of $2,545, prepare the adjusting journal entry for bad debt expense.

Accounts receivable are $416,900 at the end of the year,

Allowance for doubtful accounts has a credit balance of $2,545.

Bad Debts = 3% of accounts receivable= 3% * 416,900= 12507

The adjusting entry would be

Bad Debts Expense $ 12507 Dr.

Allowance for doubtful accounts $ 12507 Credit

As we already have a credit balance of $ 2545 in the doubtful accounts we will increase it with an amount of $ 9962 .

a) Required adjustment of $ 9962 in the Allowance for Uncollectibles

b) If we have debit balance then

Unadjusted Balance of Uncollectibles $ 950  Dr.

Estimated Balances $ 12507

Required Adjustment $  13547

The data tells that the Allowance for Doubtful Accounts has a debit balance of $950 the required adjustment to the allowance for doubtful accounts is $13547. The required entry is

Bad debts Expense 13547 Dr.

Allowance for Uncollectibles      13547 Cr.

c, theres a double tax on the business earnings

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