A company uses the percentage of receivables method for recording bad debt expense. The accounts receivable balance is $600,000 and credit sales are $2,700,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will the company make to record bad debt expense?

1. Dr Bad Debt Expense 24,000

Cr Allowance for Doubtful Accounts 24,000

2. Dr Bad Debt Expense 108,000

Cr Allowance for Doubtful Accounts 108,000

3. Dr Bad Debt Expense 108,000

Cr Accounts Receivable 108,000

4. Dr Bad Debt Expense 24,000

Cr Accounts Receivable 24,000