Problem

Megan's productgs is undecided about which base to use in estimating uncollectible accounts. On Decmber 31, 2015, the balance in Accounts Receibable was $680,000 and net credit sales amounted to $3,800,000 during 2015. An aging analysis of the accounts receivable indicated that $40,000 in accounts are expected to be uncollectible. Past experience has shown that about 1% of net credit sales eventually are uncollectible.

Instructions

Prepare the adjusting entries to record estimated bad debt expense using the (1) percentage-of-sales basis and (2) the percentage-of-receivables basis under each of the following independant assumptions. (4 answers)

(A) Allowance for Doubful Accounts has a credit balance of $3,200 before adjustment.

(B) Allowane for Doubtful Accounts has a debit balance of $730 before adjustment.