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 $135,000, and it estimates that 5% 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 $2,295 credit balance before the adjustment. (b) a $675 debit balance before the adjustment.
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