PERCENTAGE OF CREDIT SALES Clarissa Company has credit sales of $400,000 during 2010 and estimates at the end of 2010 that 2 percent of these credit sales will eventually default. Also, during 2010 a customer defaults on a $775 balance related to goods purchased in 2009. Prior to the write off for the $775 default, Clarissa’s accounts receivable and allowance for doubtful accounts balances were $402,000 and $129 (credit), respectively.

Required:
Estimate the appropriate balance for bad debt expense and prepare the adjusting entry to record the bad debt expense for 2010.
Cornerstone Exercise