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8 March, 07:58

Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $49,000, and it estimates that 5% 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 $833 credit balance before the adjustment. (b) a $245 debit balance before the adjustment.

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  1. 8 March, 10:57
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    a. Dr Bad debt expense $1,617

    Cr Allowance for doubtful debt $1,617

    b. Dr Bad debt expense $2,205

    Cr Allowance for doubtful debt $2,205

    Explanation:

    When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.

    To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i. e go bad), debit allowance for doubtful debt and credit accounts receivable.

    Estimated uncollectible amount

    = 5% * $49,000

    = $2,450

    As such, if the allowance for doubtful;

    has a $833 credit balance before the adjustment

    Additional allowance required

    =$2450 - $833

    = $1,617

    Entries required are

    Dr Bad debt expense $1,617

    Cr Allowance for doubtful debt $1,617

    b) a $245 debit balance before the adjustment.

    This means that off the amount uncollectible $245 has already gone bad

    Adjusting entries required amounts to

    = $2450 - $245

    = $2205

    Dr Bad debts expense $2205

    Cr Allowance for doubtful debt $2205
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