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29 November, 20:48

Bramble Corp. uses the percentage-of-receivables basis to record bad debt expense and concludes that 2% of accounts receivable will become uncollectible. Accounts receivable are $370,200 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,664. (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 $956 instead of a credit balance of $2,664, prepare the adjusting journal entry for bad debt expense.

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  1. 29 November, 23:27
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    (a)

    Bad debt expense debit 4,740

    Allowance for doubtful accounts credit 4,740

    (b)

    Bad debt expense debit 8,360

    Allowance for doubtful accounts credit 8,360

    Explanation:

    AR = 370,200

    Allowance 2% of AR = 7,404

    Current balance 2,664

    Adjusment 4,740

    if Current Balance 956 DEBIT

    Then 7,404 + 956 = 8,360

    We are adding because the allowance is a counter asst account, his normal balance is credit, so we have to credit for 956 to zero-out the balance and then another 7,404 credit to get the correct balance so total oof 8,360
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