At Year End Dodgy Ltd Had a Balance in Accounts

Multiple Choice

At year end Dodgy Ltd had a balance in Accounts receivable of $40 000 and an Allowance for doubtful debts of $2 000. It was decided to write off as irrecoverable the debt of Houdini Ltd totalling $3 500. It was further decided that the Allowance for doubtful debts should stand at 10 per cent of Accounts receivable. What was the journal entry needed to bring the Allowance for doubtful debts to the required level after writing off the debt of Houdini Ltd?

A) DR Bad debts expense $4 000
CR Allowance for doubtful debts $4 000
B) DR Bad debts expense $5 150
CR Allowance for doubtful debts $5 150
C) DR Bad debts expense $5 500
CR Allowance for doubtful debts $5 500
D) DR Allowance for doubtful debts $3 500
CR Accounts receivable $3 500