Answer:
a) Dr Bad Debt Expense $3,152
Cr Allowance for Doubtful Accounts $3,152
b) Dr Bad Debt Expense $7172
Cr Allowance for Doubtful Accounts $7172
Explanation:
A. Preparation of the journal entry to record bad debt expense assuming Coronado Company estimates bad debts at 4% of accounts receivable
Dr Bad Debt Expense $3,152
Cr Allowance for Doubtful Accounts $3,152
B. Preparation of the journal entry to record bad debt expense assuming Coronado Company estimates bad debts at 4% of accounts receivable but Allowance for Doubtful Accounts had a $1,540 debit balance.
Dr Bad Debt Expense $7172
Cr Allowance for Doubtful Accounts $7172
Working
(a) Allowance for Doubtful Accounts = 4% × $140,800 = $5,632 (desired credit balance in allowance account)
$5,632 - $2,480 = $3,152
(b) Allowance for Doubtful Accounts = [(4% × $140,800) + $1,540] = $7172
