Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $123,500, and it estimates that 3% will be uncollectible. Prepare the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has: (a) a $2,100 credit balance before the adjustment. (b) a $618 debit balance before the adjustment

a. Before adjusting, the Allowance for Doubtful Accounts has a $2,100 credit balance.

Debit Bad debts expense $1,605

Credit Allowance for Doubtful Accounts $1,605

b. Before adjusting, the Allowance for Doubtful Accounts has a $618 debit balance.

Debit Bad debts expense $4,323

Credit Allowance for Doubtful Accounts $4,323

Explanation:

Mazie Supply Co. uses the percent of accounts receivable method. It estimates that 3% will be uncollectible.

Estimated uncollectible =  3% x $123,500 = $3,705

a. Before adjusting, the Allowance for Doubtful Accounts has a $2,100 credit balance.

Bad debts expense = $3,705 - $2,100 = $1,605

The year-end adjusting entry:

Debit Bad debts expense $1,605

Credit Allowance for Doubtful Accounts $1,605

b. Before adjusting, the Allowance for Doubtful Accounts has a $618 debit balance

Bad debts expense = $3,705 + $618 = $4,323

The year-end adjusting entry:

Debit Bad debts expense $4,323

Credit Allowance for Doubtful Accounts $4,323

of the three mortgage options that demarco and tanya have to choose from, the balloon payment mortgage would be their best option, over adjustable payment and fixed payment plans.ultimately, the balloon payment plan would save demarco and tanya overall, in interest, would cost less monthly, and they would only have to make these payments for 8 years, opposing to 30 years for adjustable or fixed payment plans. 

overall, demarco and tanya would save $80,811 if they chose balloon payments over fixed payments, and would save $116,711 if they choose balloon payments over adjustable payments. benefits with choosing fixed payments over adjustable payments is that, in the end, the payments will still be $836.30 a month, while with adjustable payments, the initial monthly payments will be $763.38 to $1082.70 a month, ultimately leading to a more costly purchase. benefits with choosing fixed payments over balloon payments are not present. benefits in choosing adjustable payments over is that it has a lower interest rate, and starts with lower monthly payments initially. benefits in choosing adjustable payments over balloon payments include a lower interest rate, and lower initial monthly payments. benefits in choosing balloon payments over fixed payments include lower interest rates, lower overall price, lower monthly payments, takes less time to pay off, and does not require a downpayment. benefits in choosing balloon payments over adjustable payments include, lower monthly payments (when averaged), takes less time to pay off, and lower overall price.

hence, option c, balloon payments, is the best option for demarco and tanya to make this purchase, for it will save them a minimum of $80811, and a maximum of $116,711.