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5 April, 05:23

Kingbird, Inc. uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $390000 and credit sales are $1560000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Kingbird, Inc. make if the Allowance for Doubtful Accounts has a credit balance of $3900 before adjustment?

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  1. 5 April, 06:27
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    Before passing the adjusting entry, first we have to compute the allowance for doubtful debts balance which is shown below:

    = Accounts receivable * estimated percentage - credit balance

    = $390,000 * 5% - $3,900

    = $19,500 - $3,900

    = $15,600

    Now the adjusting entry would be shown below:

    Bad debt A/c Dr $15,600

    To Allowance for Doubtful Accounts A/c $15,600

    (Being adjusting entry is recorded)
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