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A company has $96,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) $860 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

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Answer:

$3,940

Explanation:

The journal entry to record the adjustment to the allowance account includes-

Debit   Bade debt expense                        $3,940 (Note - 1)

Credit  Allowance for doubtful accounts  $3,940

Note - 1

Calculation = $96,000 × 5% = $4,800

However, as the allowance for doubtful accounts has a credit balance of $860 credit, the new bad debt expense will be = ($4,800 - $860) = $3,940 debit.

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