Indigo Company reports the following financial information before adjustments.

Dr. Cr.
Accounts Receivable $132,500
Allowance for Doubtful Accounts $3,970
Sales Revenue (all on credit) 838,100
Sales Returns and Allowances 50,780

Prepare the journal entry to record bad debt expense assuming Carla Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,570 debit balance.

                                                  DR.           CR.

(a)

Bad Debt Expense                  $1,330

Allowance for Doubtful Accounts            $1,330

(b)

Bad Debt Expense                  $6,870

Allowance for Doubtful Accounts            $$6,870

Explanation:

Explanation:

a)

Allowance for Doubtful Accounts for the year = Closing Account receivable x Rate of Allowance = $132,500 x 4% = $5,300

Allowance for Doubtful Accounts already has credit balance of $3,970 so the net value of $1,330 ($5300- $3,970) is adjusted in the journal entry.

b)

As the Allowance for Doubtful Accounts already had debit balance of $1,570but we have to make it as $5,300 credit balance because this is the contra asset account which normally has credit balance.

Adjustment amount = $5,300 + $1,570 = $6,870

it established new limitations on use and disclosure for marketing purposes, prohibited selling medical information, expanded individuals’ rights to accessing their own information, and to obtain restrictions from certain disclosures of protected heath information to health plans.