Question: Massey Ltd uses the allowance method to record bad debts expense and concludes, using the percentage of accounts receivable method, that 1% of accounts receivable will become uncollectable. Accounts receivable are $500 000 at the end of the year, and the Allowance for Doubtful Debts has a credit balance of $3000.
(a) Prepare the adjusting journal entry to record bad debts expense for the year.
(b) If the Allowance for Doubtful Debts had a debit balance of $800 instead of a credit balance of $3000,
determine the amount to be reported for bad debts expense.