Marigold Corp. uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $120000 and credit sales are $1210000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Marigold Corp. make if the Allowance for Doubtful Accounts has a credit balance of $1200 before adjustment?

The journal entry for the following is shown below:

Explanation:

The journal entry for the following is as follows:

Bad Debts Expense A/c ... Dr $3,600

Allowance for Doubtful Accounts A/c ... Cr $3,600

Being the adjusting entry for bad debt expense

Working Note:

Using the percentage of accounts receivable computing the amount of bad debt expense as:

Allowance for doubtful accounts = Accounts receivable * %

= $120,000 * 4%

= $4,800

Now, computing the bade debt expense as:

Bad debt expense = Allowance for doubtful debts - Credit balance

= $4,800 - $1200

= $3,600