Answer:
a) The balance in the allowance for doubtful accounts would be $1,485. Considering the existing credit balance of $600, the adjustment to be recorded would be Debit Bad debt expense $885; Credit Allowance for doubtful accounts $885.
However, if the allowance account had a year-end unadjusted debit balance of $300, then the entries to be recorded would be Debit Bad debt expense of $1,785; Credit Allowance for doubtful accounts $1,785.
b) Debit Bad debt expense $800; Credit Allowance for doubtful accounts $800.
Explanation:
a) <u>1.5% of accounts receivable is 1.5% * $99,000 = $1,485</u>. Remember, the company has a balance of $600 in the allowance for doubtful accounts, then the above journal entries are to be recorded to recognize additional bad debt expense ($1,485 minus $600). If, however, the balance in the allowance account is a debit balance of $300, then the amount to be recorded as additional bad debt expense would be $1,785 ($1,485 + $300) in order to reinstate the allowance account to $1,485.
b) <u>0.5% of sales is 0.5% * $280,000 = $1,40</u>0. If the background facts remain the same, the additional bad debt expense would be $800 ($1,400 minus $600). The entries above apply.
