Answer:
DR. CR.
(a)
Bad Debt Expense $2,000
Allowance for Doubtful Accounts $2,000
(b)
Bad Debt Expense $5,420
Allowance for Doubtful Accounts $5,420
Explanation:
a)
Allowance for Doubtful Accounts forthe year = Closing Account receivable x Rate of Allowance = $100,000 x 4% = $4,000
Allowance for Doubtful Accounts already has credit balance of $2,000 sot he net value of $2,000 ($4000- $2000) is adjusted in the journal entry.
b)
As the Allowance for Doubtful Accounts already had debit balance of $1,420but we have to make it as $4,000 credit balance because this is the contra asset account which normally has credit balance.
Adjustment amount = $4,000 + $1,420 = $5,420
* The data was missing in the question which is as follow
Duncan Company reports the following financial information before adjustments.
Dr. Cr.
Accounts Receivable $100,000
Allowance for Doubtful Accounts $2,000
Sales Revenue (all on credit) $900,000
Sales Returns and Allowance $50,000
