Splish Brothers Inc. uses the percentage-of-receivables basis to record bad debt expense and concludes that 3% of accounts receivable will become uncollectible. Accounts receivable are $402,700 at the end of the year, and the allowance for doubtful accounts has a credit balance of $2,897. (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 $989 instead of a credit balance of $2,897, prepare the adjusting journal entry for bad debt expense.

A. Dr Bad Debt Expense $9,184

Cr Allowance for Doubtful accounts$9,184

B. Dr Bad Debt Expense $13,070

Cr Allowance for Doubtful accounts $13,070

Explanation:

a.Preparation of the adjusting journal entry to record bad debt expense for the year.

Dr Bad Debt Expense $9,184

[($402,700 x 3%) - $ 2,897 ]

Cr Allowance for Doubtful accounts$9,184

(To record bad debt expense)

b. Preparation of the adjusting journal entry for bad debt expense

Dr Bad Debt Expense $13,070

[($402,700 x 3%) + $ 989]

Cr Allowance for Doubtful accounts$13,070

(To record bad debt expense)

answer; specific performance;