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Wildhorse Co. uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $260000 and credit sales are $2610000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Wildhorse Co. make if the Allowance for Doubtful Accounts has a credit balance of $2600 before adjustment

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tutorAnne

Answer: nPlease see explanation column for answers

Explanation:

In  recording bad debts expense using the percentage of receivable method

Account receivables = $260,000

 Allowance for doubtful debts = 4% OF Account receivables

= $260,000 x 4% = $10,400  

The existing balance before adjustment = $2,600  

The Adjustment required=  Allowance for doubtful accounts - Credit balance

= $10,400 - $2,600

= $7,800

Journal to record the adjustment for allowance for doubtful accounts

                   Account Title                Debit                Credit

         Bad Debts expense                     $7,800  

        To Allowance for Doubtful Accounts                $7,800

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