Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $76,000, and it estimates that 3% 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 $1,292 credit balance before the adjustment. (b) a $380 debit balance before the adjustment.

(a) Dr Bad debts expense $988

Cr Allowance for doubtful accounts $988

(b) Dr Bad debts expense $2,660

Cr Allowance for doubtful accounts $2,660

Explanation:

Preparation of the year-end adjusting entry to record bad debts Expense

(a) Dr Bad debts expense $988

Cr Allowance for doubtful accounts $988

[(3%*$76,000)-$1,292]

(Being to record credit balance before the adjustment)

(b) Dr Bad debts expense $2,660

Cr Allowance for doubtful accounts $2,660

[(3%*$76,000)+$380]

(Being to record debit balance before the adjustment)