Shenzhen Co. uses the percentage-of-receivables basis to record bad debt expense. It estimates that 1% of accounts receivable will become uncollectible. Accounts receivable are 420,000 at the end of the year, and the allowance for doubtful accounts has a credit balance of 1,500.

(a) Prepare the adjusting journal entry to record bad debt expense for the year.

(b) If the allowance for doubtful accounts had a debit balance of 740 instead of a credit balance of 1,500, determine the amount to be reported for bad debt expense. Please explain all steps detally.

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