Question - A company uses the percentage-of-receivables method for establishing the bad-debt reserve. They want the reserve balance to equal 0.5% of debts 30 days old or less, 2% of debts aged 31 to 60 days, and 4% of debts aged over 60 days. An aging report shows $780,000 relating to the past month, $232,600 relating to the prior month, and $89,200 relating to more than two months ago. The balance in the reserve account before adjustment is $10,175. What is the adjusting journal entry?
debit bad-debt expense, credit accounts receivable $1,945
debit bad-debt expense, credit allowance for bad debts $1,945
debit bad-debt expense, credit allowance for bad debts $12,120
debit allowance for bad debts, credit bad-debt expense $1,945