Question

Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $90,000, and it estimates that 2% will be uncollectible.

Prepare the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has:

1. (a) a $1,530 credit balance before the adjustment.

2. (b) a $450 debit balance before the adjustment.

Answer 1

Answer (a)

Particulars	Debit	Credt
Bad Debt expense	$270
Allowance for doubtful accounts		$270
( For Provision for doubtful accounts)

A.	Balance in Allowance for doubtful accounts	$1,530
B.	Provision @ 2% of $90,000	$1,800
C.	Remaining provision to create(B-A)	$270

Answer (b)

Particulars	Debit	Credt
Bad Debt expense	$18,450
Allowance for doubtful accounts		$18,450
( For Provision for doubtful accounts)

A.	Balance in Allowance for doubtful accounts	-$450
B.	Provision @ 2% of $90,000	$1,800
C.	Remaining provision to create(B-A)	$2,250