Answer:
B) Bad Debts Expense 4600 Allowance for Doubtful Accounts 4600
Explanation:
Before passing the adjusting entry, we have to do the calculations which are shown below
The computation of the credit loss is shown below:
= Estimated amount - Estimated uncollectible account - Account receivable ending balance
where,
Estimated amount = Account receivable ending balance × given percentage
= $160,000 × 2%
= $3,200
And, the estimated uncollectible amount = Past due balance × estimated percentage
= $20,000 × 15%
= $3,000
The other item values remain the same
Now put the values to the above formula
So, the value would be equal to
= $3,200 + $3,000 - $1,600
= $4,600
Now the journal entry would be
Bad debt expense A/c Dr $4,600
To Allowance for Doubtful Accounts $4,600
(Being credit losses are recorded)
