At each calendar year-end, Mazie Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, it has outstanding accounts receivable of $55,000, and it estimates that 2% will be uncollectible. Prepare the adjusting entry to record bad debts expense for the year ended December 31 under the assumption that the Allowance for Doubtful Accounts has: (a) a $415 credit balance before the adjustment. (b) a $291 debit balance before the adjustment.

The journal entries are shown below:

(a) a $415 credit balance before the adjustment.

Bad debt expense A/c Dr $685

To Allowance for Doubtful Accounts $685

(Being bad debt expense recorded)

Since the allowance for doubtful debts have a credit balance so this amount will be deducted. The computation is shown below?:

= (Outstanding accounts receivable * uncollectible rate) - credit balance

= ($55,000 * 2%) - $415

= $1,100 - $415

= $685

(b) a $291 debit balance before the adjustment.

Bad debt expense A/c Dr $1,391

To Allowance for Doubtful Accounts $1,391

(Being bad debt expense recorded)

Since the allowance for doubtful debts have a debit balance so this amount will be added. The computation is shown below?:

= (Outstanding accounts receivable * uncollectible rate) + debit balance

= ($55,000 * 2%) + $291

= $1,100 - + $291

= $1,391