Question

Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $390,000 and credit sales are $1,300,000. An aging of accounts receivable shows that approximately 5% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?A. Bad Debt Expense 17,000Allowance for Doubtful Accounts 17,000B. Bad Debt Expense 19,500Allowance for Doubtful Accounts 19,500C. Bad Debt Expense 22,000Allowance for Doubtful Accounts 22,000D. Bad Debt Expense 65,000Allowance for Doubtful Accounts 65,000

Answer 1

Answer:

A. Bad Debt Expense 17,000Allowance for Doubtful Accounts 17,000

Explanation:

390,000 account receivable

againg of accounts 5% of account receivable

5% of 390,000 = $19,500

current allowance 2,500

adjustment          17,000

Because it is based on the account receivable balance, we adjust  the allowoance to reach the target estimated bad debt.