Bramble corp. uses the percentage-of-receivables basis to record bad debt expense and concludes that 2% of accounts receivable will become uncollectible. accounts receivable are $370,200 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,664. (a) prepare the adjusting journal entry to record bad debt expense for the year. (b) if the allowance for doubtful accounts had a debit balance of $956 instead of a credit balance of $2,664, prepare the adjusting journal entry for bad debt expense.

(a)

Bad debt expense  debit   4,740

Allowance for doubtful accounts  credit 4,740

(b)

Bad debt expense  debit   8,360

Allowance for doubtful accounts  credit 8,360

Explanation:

AR = 370,200

Allowance 2% of AR = 7,404

Current balance           2,664

Adjusment                    4,740

if Current Balance      956 DEBIT

Then 7,404 + 956 = 8,360

We are adding because the allowance is a counter asst account, his normal balance is credit, so we have to credit for 956 to zero-out the balance and then another 7,404 credit to get the correct balance so total oof 8,360

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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