Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $250,000 and credit sales are $1,000,000. Management estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment? 1) Bad Debt Expense 10,000 Allow. Doubtful Accts. 10,000 2) Bad Debt Expense 7,500 Allow. Doubtful Accts. 7,500 3) Bad Debt Expense 7,500 Accounts Receivable 7,500 4) Bad Debt Expense 10,000 Accounts Receivable 10,000