Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $87,000, and it estimates that 4% will be uncollectible. Prepare the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has: (a) a $1,479 credit balance before the adjustment. (b) a $435 debit balance before the adjustment.

a. Balance in the allowance doubtful account = $1,479 (Credit)

Allowance for doubtful accounts to be maintained = 4% of the accounts receivables = 4% * $87,000 = $3,480

Net amount of bad debt to be recorded = $3,480 - $1,479 = $2,001

Date  Account titles and explanation          Debit     Credit

         Bad debt expenses                              $2,001

                Allowance for doubtful accounts                $2,001

        (To record entry of bad debt expenses)

b. Balance in the allowance doubtful account = $435 (Debit)

Allowance for doubtful accounts to be maintained = 4% of the accounts receivables = 4% * $87,000 = $3,480

Net amount of bad debt to be recorded = $3,480 + $435 = $3,915

Date  Account titles and explanation          Debit     Credit

         Bad debt expenses                              $3,915

                Allowance for doubtful accounts                $3,915

        (To record entry of bad debt expenses)

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