Sunland Company uses the percentage-of-receivables basis to record bad debt expense and concludes that 3% of accounts receivable will become uncollectible. Accounts receivable are $435,700 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,653. (a)Prepare the adjusting journal entry to record bad debt expense for the year. (b)If the allowance for doubtful accounts had a debit balance of $827 instead of a credit balance of $2,653, prepare the adjusting journal entry for bad debt expense.

Provided Below

Explanation:

Journal entries

(a)    

DateGeneral Journal   DEBIT ($)   CREDIT ($)

Bad Debt Expense          10,418.00  

Allowance for Bad Debts                   10,418.00

(b)    

DateGeneral Journal   DEBIT ($)   CREDIT ($)

Bad Debt Expense          13,898.00  

Allowance for Bad Debts                  13,898.00

Explanation  

(a)3% of accounts receivable uncollectible = $435,700*3% = $13,071  

Credit balance of allowance for doubtful accounts = $2,653  

Hence, Bad Debt Expense = 13,071 - 2,653 = $10,418  

(b)3% of accounts receivable uncollectible = $435,700*3% = $13,071  

Debit balance of allowance for doubtful accounts = $827  

Hence, Bad Debt Expense = 13,071 + 827 = $13,898

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