Rachel’s Clothing Company has a receivables balance of $15,000 at the end of the year. Based on past history, Rachel estimates that it will not collect 2% of its receivables balance. Prior to any year-end adjustment, the balance in the allowance account is a $200 debit.
Required
a. Prepare the journal entry to record bad debt expense for the year. Show your calculation of bad debt expense in T-account form.
b. Assume that the balance in the allowance account was a $100 credit instead of the $200 debit. What is bad debt expense in this situation? Show your calculation in T-account form.