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Manning Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?a. Bad Debts Expense 10,000Allowance for Doubtful Accounts 10,000b. Bad Debts Expense 8,000Allowance for Doubtful Accounts 8,000c. Bad Debts Expense 8,000Accounts Receivable 8,000d. Bad Debts Expense 10,000Accounts Receivable 10,000

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Answer:

b. Bad Debts Expense 8,000 Allowance for Doubtful Accounts 8,000

Explanation:

5% of accounts receivable will be uncollectible, so bad debts are estimated:

5% x $200,000 = $10,000

The Company uses the percentage of receivables method for recording bad debts expense and the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment, so the Bad debts expense amount the company will record by adjusting entry:

$10,000 - $2,000 = $8,000

We use Allowance for Doubtful Accounts to make the adjusting entry:

Debit Bad Debts Expense $8,000

Credit Allowance for Doubtful Accounts $8,000

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