Red Hat, Inc., is a software development company that recently reported the following amounts in its unadjusted trial balance as of February 29, 2016.

	Debits				Credits
Accounts Receivable	$	31,191,000
Allowance for Doubtful Accounts					$	953,000
Sales and Service Revenue						158,812,000

Required:

a. Assume Red Hat uses 3/4 of 1 percent of revenue to estimate its bad debt expense for the year. Prepare the adjusting journal entry required at February 29 for recording Bad Debt Expense.

Record the entry for bad debt expenses under the percentage of credit sales method.

b. Assume instead that Red Hat uses the aging of accounts receivable method and estimates that $1,009,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 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.

Record the entry for bad debt expenses under the aging of accounts receivable method.

c. Assume that the unadjusted balance in Red Hat's Allowance for Doubtful Accounts at February 29 was a debit balance of $1,150,000. Red Hat uses the aging of accounts receivable method and estimates that $953,000 of Accounts Receivable will be uncollectible. Prepare the adjusting journal entry required at February 29 for recording bad debt expense.

Record the adjusting entry for bad debts as of February 29, using the aging of accounts receivable method.

d. If one of Red Hats customers declared bankruptcy, what journal entry would be used to write off its $10,000,000 balance?

Record the write-off of a $10,000,000 customer account, which is not collectible due to bankruptcy.