Pharoah Company uses the percentage-of-receivables method for recording bad debt

Question

Pharoah Company uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $440000 and credit sales are $1760000. Management estimates that 6% of accounts receivable will be uncollectible. What adjusting entry will Pharoah Company make if the Allowance for Doubtful Accounts has a credit balance of $4400 before adjustment?

A.Bad Debt Expense 22000

Allowance for Doubtful Accounts 22000

B.Bad Debt Expense 30800

Allowance for Doubtful Accounts 30800

C.Bad Debt Expense 17600

Accounts Receivable 17600

D.Bad Debt Expense 8800

Allowance for Doubtful Accounts 8800

Explanation / Answer

A.Bad Debt Expense 22000

Allowance for Doubtful Accounts 22000

440,000*6%=$26,400-4,400=$22,000.

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