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Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $140,000, and it estimates that 6% 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 $2,380 credit balance before the adjustment. (b) a $700 debit balance before the adjustment.

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Answer:

estimated bad debt expense = $140,000 x 6% = $8,400

a) balance of allowance for doubtful accounts = $2,380

$8,400 - $2,380 = $6,020

Dr Bad debt expense 6,020

    Cr Allowance for doubtful accounts 6,020

b) balance of allowance for doubtful accounts = ($700)

$8,400 + $700 = $7,100

Dr Bad debt expense 7,100

    Cr Allowance for doubtful accounts 7,100

Allowance for doubtful accounts is a contra asset account with a normal credit balance.

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