Apply the allowance method: Mouse Ears Inc. has been in business for five years. At the end of each reporting period management uses the allowance method for estimating and recognizing bad debt expense. You have been hired to prepare the journal entry to recognize bad debt using management's estimate for this reporting period. Mouse Ears Inc.'s management provides you with the following information: Net sales of $5,250,000, accounts receivable of $820,000 and the allowance for doubtful accounts of $200,000. After management aged the receivables, they concluded that 25% of the $820,000 accounts receivable would not be collectible. Using the allowance method - What would the correct journal entry be to record / to recognize bad debt expense based on management's estimate? A) Bad Debts Expense $205,000 Allowances for Doubtful Accounts $205,000
B) Bad Debts Expense $5,000 Allowance for Doubtful Accounts $5,000
C) No entry needs to be made