CP8-1 (Static) Recording Accounts Receivable Transactions Using Two Estimation Methods [LO 8-2]

Red Hat, Incorporated, is a software development company that recently reported the following amounts (in thousands) in its unadjusted trial balance as of February 28, 2019.

	Debits	Credits
Accounts Receivable	$ 984,750
Allowance for Doubtful Accounts		$ 4,500
Sales and Service Revenue		3,300,000

Required:

Assume Red Hat uses of 1 percent of revenue to estimate its bad debt expense for the year. Prepare the adjusting journal entry required at February 28 for recording Bad Debt Expense.

Assume instead that Red Hat uses the aging of accounts receivable method and estimates that $5,000 (thousand) of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 28 for recording bad debt expense. TIP: The aging of accounts receivable method focuses on calculating what the adjusted Allowance for Doubtful Accounts balance should be. You need to consider the existing balance when determining the adjustment.

Assume that the unadjusted balance in Red Hat's Allowance for Doubtful Accounts at February 28 was a debit balance of $1,000 (thousand). Red Hat uses the aging of accounts receivable method and estimates that $5,000 (thousand) of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 28 for recording bad debt expense.

If one of Red Hats customers declared bankruptcy, what journal entry would be used to write off its $500 (thousand) balance?