Sunland Company uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $310000 and credit sales are $1240000. Management estimates that 6% of accounts receivable will be uncollectible. What adjusting entry will Sunland Company make if the Allowance for Doubtful Accounts has a credit balance of $3100 before adjustment?

Sunland Company

The Accounts Receivable balance is $310000

Credit sales are $1240000

Bad debts 6% of accounts receivable = 6% of $310000 = $ 18600

Allowance for Doubtful Accounts has a credit balance of $3100

Required Adjustment $ 15,500

The following adjusting entry will be made.

Journal Entry

Date Particulars Debit Credit

Bad Debts Expense 15,500

Allowance for Doubtful Debts 15,500

Answer: $15,500

Explanation:

First we calculate the estimated Uncollecteble debt,

= 6% of 310,000

= 0.06 (310,000)

= $18,600

We will then subtract the existing $3,100 to find out how much we will send to the Bad Debt Expense account because the amount already in the account needs to be included in the $18,600.

= 18,600 - 3,100

= $15,500

We will therefore Debit the Bad Debt Expense account with $15,500 and Credit the Allowance for Doubtful Accounts with the same amount.

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