Fredonia Co.s accounts receivable balance is $250,000 and credit sales for the period are $1,000,000. Additionally, the Allowance for Doubtful Accounts has a credit balance of $2,500 before any adjustments. What adjusting entry will Fredonia Co. make if management uses the percentage of receivables method and estimates that 4% of accounts receivable will be uncollectible?

Select one:

a. debit Bad Debts Expense $7,500; credit Accounts Receivable $7,500.

b. debit Bad Debts Expense $7,500; credit Allowance for Doubtful Accounts $7,500.

c. debit Bad Debts Expense $10,000; credit Allowance for Doubtful Accounts $10,000.

d. debit Bad Debts Expense $10,000; credit Accounts Receivable $10,000.