Nairobi Corp.'s unadjusted trial balance includes the following balances:

Dr. Cr.

Accounts receivable $150,000

Allowance for doubtful accounts $3,500

Sales (all on credit) 720,000

Sales returns and allowances 30,000

Instructions

a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (1) 5% of gross accounts receivable and (2) 2% of net sales.

b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $3,500 instead of a credit balance.