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Grey Corporation has $100,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a credit of $1,000. Experience suggests 5 percent of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is:

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Answer: $4000

Explanation:

Amount receivable = $100,000

Allowance for uncolletible account  at 5%= 5% x 100,000 =$5000

Adjusted balance for Allowance for doubtful accounts  = credit of $1000

Bad Debit Expense = Allowance for uncolletible account  - Adjusted credit balance on doubtful accounts=$5000-$1000= $4000

JOURNAL ENTRY

Date          Accounts          Debit            Credit

31 Dec      Bad Debts       $4000

Allowance for doubtful account              $4000

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