Question

# Entity G uses the percentage of receivables method for recording bad debts expense. The accounts receivable...

1. Entity G uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is \$500,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Entity G make if the Allowance for Doubtful Accounts has a credit balance of \$4,000 before adjustment?

 Dr. Bad Debt Expense                                     21,000       Cr. Accounts Receivable                                             21,000 Dr. Bad Debt Expense                                     21,000       Cr. Allowance for Doubtful Accounts                      21,000 Dr. Bad Debt Expense                                     25,000       Cr. Allowance for Doubtful Accounts                      25,000 Dr. Allowance for Doubtful Accounts     29,000 Cr. Bad Debt Expense 29,000

Bad debt expense = (Accounts receivable * 5%) - Credit balance in the allowance for doubtful accounts

= (\$500,000 * 5%) - \$4,000

= \$25,000 - \$4,000

= \$21,000

Cr. Allowance for Doubtful Accounts                      21,000