Waterway Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $145,600 Allowance for Doubtful Accounts $3,350 Sales Revenue (all on credit) 834,000 Sales Returns and Allowances 53,540 Prepare the journal entry to record bad debt expense assuming Waterway Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,420 debit balance

The journal entry is shown below:

Explanation:

According to the scenario, the journal entry are as follows:

(a). Journal entry

Bad Debt expenses A/c Dr $2,474

To Allowance for Doubtful debts A/c $2,474

(Being the bad debt expense is recorded)

Computation = ($145,600 * 4%) - $3,350 = $5,824 - $3,350

= $2,474

(b). Journal entry

Bad Debt expenses A/c Dr $7,244

To Allowance for Doubtful debts A/c $7,244

(Being the bad debt expense is recorded)

Computation = ($145,600 * 4%) + $1,420 = $5,824 + 1,420

= $7,244