Grey Corporation has $100,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a credit of $1,000. Experience suggests 5 percent of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is: a.$1,000 b.$2,070 c.$5,000 d.$6,000 e.$4,000

e. $4,000

Explanation:

The calculation of adjusting entry is shown below:-

Adjusted balance required in Allowance account = Accounts receivable * Receivable percentage

= $100,000 * 5%

= $5,000 Credit

Existing Unadjusted balance in Allowance account = $1,000 credit

Bad Debt Expense = Adjusted balance required in Allowance account - Existing Unadjusted balance in Allowance account

= $5,000 - $1,000

= $4,000

So, for computing the bad debt expenses we simply deduct existing Unadjusted balance in Allowance account from adjusted balance required in Allowance account