Answer:
The following journal entries apply:
a) Debit Bad debt expense $33,692.4
Credit Allowance for doubtful accounts $33,692.4
b) Debit Bad debt expense $38,612.4
Credit Allowance for doubtful accounts $38,612.4
Explanation:
All the sales revenue are on credit to the tune of $834,000, however, there was sales return and allowance of $53,540, which has to be deducted from credit sales to arrive at the net credit sales of $780,460. This amount would be added to the accounts receivable of $145,600 to arrive at the total accounts receivable of $926,060.
a) 4% of $926,060 is $37,042.4. With credit balance of $3,350 in allowance for doubtful accounts, bad debt expense (addition) is $33,692.4 ($37,042.4 - $3,350).
b) 4% of $926,060 is $37,042.4 and there is a debit balance of $1,570 in allowance for doubtful accounts, bad debt expense (to reinstate allowance account to $37,042.4) is $38,612.4 ($37,042.4 + $1,570).
