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Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $63,000, and it estimates that 5% will be uncollectible. Prepare the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has: (a) a $1,071 credit balance before the adjustment. (b) a $315 debit balance before the adjustment.

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Answer:

A. Dr Bad debt expense $2,079

Cr To Allowance for Doubtful Accounts

$2,079

B. Dr Bad debt expense $3,465

Cr To Allowance for Doubtful Accounts $3,465

Explanation:

(a) Preparation of the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has: a $1,071 credit balance before the adjustment

Dr Bad debt expense $2,079

Cr To Allowance for Doubtful Accounts $2,079

(Being bad debt expense recorded)

Bad debt expense= (Outstanding accounts receivable × uncollectible percentage) - Credit balance

Bad debt expense= ($63,000 × 5%) - $1,071

Bad debt expense= $3,150 - $1,071

Bad debt expense= $2,079

(b) Preparation of the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has:a $315 debit balance before the adjustment.

Dr Bad debt expense $3,465

Cr To Allowance for Doubtful Accounts $3,465

(Being bad debt expense recorded)

Bad debt expense= (Outstanding accounts receivable × uncollectible percentage) - Dredit balance

Bad debt expense= ($63,000 × 5%) - $315

Bad debt expense= $3,150 -+ $315

Bad debt expense= $3,465

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