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Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding...

Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $124,500, 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 $2,117 credit balance before the adjustment. (b) a $623 debit balance before the adjustment.

Expert Solution

Answer:

Date	Account Title and Explanation	Debit	Credit
(a)	Bad Debts expense	$4108
	Allowance for doubtful Account		$4108
	(Record of Adjusting entries for bad debts expense)

(b)	Bad Debts expense	$6848
	Allowance for doubtful Account		$6848
	(Record of Adjusting entries for bad debts expense)

Explanation:

(a)

Outstanding Account Receivable = $124500

Percentage of uncollectible Amount = 5%

Uncollectible Expense = $124500*5% = $6225

Credit balance in Allowance for doubtful Account = $2117

Bad debts expense = Uncollectible Expense - Credit balance in Allowance for doubtful Account

= $6225 - $2117

= $4108

(b)

Outstanding Account Receivable = $124500

Percentage of uncollectible Amount = 5%

Uncollectible Expense = $124500*5% = $6225

Debit balance in Allowance for doubtful Account = $623

Bad debts expense = Uncollectible Expense + Credit balance in Allowance for doubtful Account

= $6225 + $623

= $6848.

ekkarill92 answered 2 years ago

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