At each calendar year-end, mazie supply co. uses the percent of accounts receivable method to estimate bad debts. on december 31, it has outstanding accounts receivable of $55,000, and it estimates that 2% will be uncollectible. prepare the adjusting entry to record bad debts expense for the year ended december 31 under the assumption that the allowance for doubtful accounts has: (a) a $415 credit balance before the adjustment. (b) a $291 debit balance before the adjustment.

1. Allowance for the doubtful debts have a credit balance, therefore, this amount of $415 will be deducted.

Bad debt expenses = (Outstanding accounts receivable*Uncollectible rate) - Credit balance

Bad debt expenses = ($55,000 × 2%) - $415

Bad debt expenses = $1,100 - $415

Bad debt expenses = $685

The journal entries includes the below

Date  Particulars                                 Debit      Credit

         Bad debt expense A/c               $685

              To Allowance for Doubtful Accounts   $685

         (Being bad debt expense recorded)

2. The allowance for doubtful debts have a debit balance, therefore, the amount of $291 will be added

Bad debt expenses = (Outstanding accounts receivable*Uncollectible rate) + Debit balance

Bad debt expenses = ($55,000 × 2%) + $291

Bad debt expenses = $1,100 - (+$291)

Bad debt expenses = $1,391

The journal entries includes the below

Date  Particulars                                 Debit      Credit

         Bad debt expense A/c              $1,391

               To Allowance for Doubtful Accounts  $1,391

         (Being bad debt expense recorded)

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Explanation:

The journal entries are shown below:

(a) a $415 credit balance before the adjustment.

Bad debt expense A/c Dr  $685

     To Allowance for Doubtful Accounts   $685

(Being bad debt expense recorded)

Since the allowance for doubtful debts have a credit balance so this amount will be deducted. The computation is shown below?:

= (Outstanding accounts receivable × uncollectible rate) - credit balance

= ($55,000 × 2%) - $415

= $1,100 - $415

= $685

(b) a $291 debit balance before the adjustment.

Bad debt expense A/c Dr  $1,391

     To Allowance for Doubtful Accounts   $1,391

(Being bad debt expense recorded)

Since the allowance for doubtful debts have a debit balance so this amount will be added. The computation is shown below?:

= (Outstanding accounts receivable × uncollectible rate) + debit balance

= ($55,000 × 2%) + $291

= $1,100 -+$291

= $1,391

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