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Bramble Company reports the following financial information before adjustments. Dr. Cr. Accounts Receivable $138,100 Allowance for Doubtful Accounts $2,970 Sales Revenue (all on credit) 845,000 Sales Returns and Allowances 53,310 Prepare the journal entry to record bad debt expense assuming Bramble Company estimates bad debts at (a) 4% of accounts receivable and (b) 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,410 debit balance

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Answer:

a. The adjusting entry:

Debit Bad debts expense $2,554

Credit Allowance for doubtful accounts $2,554

b. The adjusting entry:

Debit Bad debts expense $6,934

Credit Allowance for doubtful accounts $6,934

Explanation:

Bramble Company estimates bad debts at 4% of accounts receivable.

Estimated bad debts =  4% x $138,100 = $5,524

a. Before adjustments, Allowance for Doubtful Accounts had a $2,970 credit balance.

Bad debts expense = $5,524 - $2,970 = $2,554

The adjusting entry:

Debit Bad debts expense $2,554

Credit Allowance for doubtful accounts $2,554

b. Before adjustments, Allowance for Doubtful Accounts had a $1,410 debit balance.

Bad debts expense = $5,524 + $1,410 = $6,934

The adjusting entry:

Debit Bad debts expense $6,934

Credit Allowance for doubtful accounts $6,934