Answer:
Adjusting entry Valli Company will make to record the bad debts expense:
Debit Bad Debts Expense $25,000
Credit Allowance for Doubtful Account $25,000
Explanation:
Valli Company uses the percentage of sales method for recording bad debts expense. Bad debts expense is calculated by using the following formula:
Bad Debts Expense = % Estimated Bad debts × Credit Sales
In Valli, Credit sales are $2,500,000 and % estimated is 1%.
Bad Debts Expense = 1% x $2,500,000 = $25,000
The adjusting entry to record the bad debts expense will be:
Debit Bad Debts Expense $25,000
Credit Allowance for Doubtful Account $25,000
