Answer:
Under the percentage-of-sales basis, adjusting entry required
Debit Bad debt expenses $1,100
Credit Allowance for doubtful debt $1,100
Under the percentage-of-receivables basis, adjusting entry required
Debit Bad debt expenses $2,500
Credit Allowance for doubtful debt $2,500
Explanation:
When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.
To account for this, an allowance is created by passing a debit to bad debit expense and a corresponding credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.
Under the percentage-of-sales basis, additional amount to be allowed
= $4,100 - $3,000
= $1,100
Under the percentage-of-receivables basis, additional amount to be allowed
= $5,800 - $3,000
= $2,500
