Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $390,000 and credit sales are $1,300,000. An aging of accounts receivable shows that approximately 5% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment?
A) Bad Debt Expense Allowance for Doubtful Accounts
17,000
17,000
B) Bad Debt Expense Allowance for Doubtful Accounts
19,500
19,500
C) Bad Debt Expense Allowance for Doubtful Accounts
22,000
22,000
D) Bad Debt Expense Allowance for Doubtful Accounts
65,000
65,000

Question

Quizplus · Accepted Answer

The correct answer is A because the adjusting entry to record bad debt expense is to debit Bad Debt Expense for $17,000 and credit Allowance for Doubtful Accounts for $17,000. The Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment, so the adjusting entry will increase the credit balance to $19,500.

Tanning Company Analyzes Its Receivables to Estimate Bad Debt Expense