Answer:
(a) The adjusting journal entry to record bad debt expense for the year:
Debit Bad debt expense $5,640
Credit Allowance for doubtful accounts $5,640
<em>(To record bad debt expense)</em>
(b) If the allowance for doubtful accounts had a debit balance of $870 instead of a credit balance of $2,950, The appropriate journal entries are:
Debit Bad debt expense $9,460
Credit Allowance for doubtful accounts $9,460
<em>(To record bad debt expense)</em>
Explanation:
To arrive at the bad debt expense for Kingbird, Inc., we simply need to calculate 3% of accounts receivable, as follows:
2% of $429,500 = $8,590
Since the allowance for doubtful accounts has a credit balance of $2,950, the bad debt expense will be: $8,590 - $2,950 = $5,640. The appropriate journal entries are as provided above.
However, if the allowance for doubtful accounts had a debit balance of $870 instead of a credit balance of $2,950, the bad debt expense will be: $8,590 + $870 = $9,460. The addition is necessary in order to reinstate the allowance account to $8,590. The appropriate journal entries are as provided above.
