Check my work Check My Work button is now enabledItem 3Item 3 3.16 points Exercise 7-6 Percent of accounts receivable method LO P3 At each calendar year-end, Mazie Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, 2017, it has outstanding accounts receivable of $75,500, and it estimates that 4% will be uncollectible. Prepare the adjusting entry to record bad debts expense for year 2017 under the assumption that the Allowance for Doubtful Accounts has: (a) a $1,284 credit balance before the adjustment. (b) a $378 debit balance before the adjustment.

Journal entries

(a)

Dr. Bad Debt Expense                         $1,736

Cr. Allowance for Doubtful Accounts $1,736

(b)

Dr. Bad Debt Expense                         $3,398

Cr. Allowance for Doubtful Accounts $3,398

Explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Closing Value of the Allowance for Doubtful Accounts will be as follow

Closing Balance = $75,500 x 4% = $3,020

(a)

As Allowance for Doubtful Accounts already have credit balance of $1,284, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $3,020 at the year end.

Adjustment Value = $3,020 - $1,284 = $1,736

(b)

As Allowance for Doubtful Accounts already have debit balance of $378, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $3,020 at the year end.

Adjustment Value = $3,020 + $378 = $3,398

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