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Oriole Company uses the percentage-of-receivables basis to record bad debt expense and concludes that 2% of accounts receivable will become uncollectible. Accounts receivable are $391,900 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,903. (a) Prepare the adjusting journal entry to record bad debt expense for the year. (b) If the allowance for doubtful accounts had a debit balance of $827 instead of a credit balance of $2,903, prepare the adjusting journal entry for bad debt expense.

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Answer and Explanation:

According to the scenario, journal entry for the given data are as follows:

a).   Journal entry to record bad-debt expense  

Bad-debt expense A/c [($391,900 × 2÷100) - $2,903] Dr. $4,935  

To Allowance for doubtful accounts A/c   $4,935

    (To record bad-debts expense)

b).   Journal entry to record bad-debt expense

Bad-debt expense A/c [($391900×2÷100)+$827 ] Dr. $8,665

To Allowance for doubtful accounts A/c $8,665

      (To record bad-debts expense)

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