Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $63,500, and it estimates that 6% 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 $1,080 credit balance before the adjustment. (b) a $318 debit balance before the adjustment.

The journal entries are as follows:

(a) A $1,080 credit balance before the adjustment.

Bad Debt Expense A/c Dr. $2,730

        To Allowance for Doubtful Accounts   $2,730

(To record the bad debt expense)

Workings:

The credit balance of allowance for doubtful accounts will be deducted from the uncollectible accounts.

Bad Debt Expense:

= Uncollectible - Credit balance

= (6% × $63,500) - $1,080

= $3,810 - $1,080

= $2,730

(b) A $318 debit balance before the adjustment.

Bad Debt Expense A/c Dr. $4,128

        To Allowance for Doubtful Accounts   $4,128

(To record the bad debt expense)

Workings:

The debit balance of allowance for doubtful accounts will be added to the uncollectible accounts.

Bad Debt Expense:

= Uncollectible + Debit balance

= (6% × $63,500) + $318

= $3,810 + $318

= $4,128