Asked by Chasity Martin on May 13, 2024
Verified
Allowance for Doubtful Accounts has a debit balance of $2,500 at the end of the year (before adjustment) , and bad debt expense is estimated at 4% of credit sales. If credit sales are $800,000, the amount of the adjusting entry to record the estimate of the uncollectible accounts
A) is $29,500
B) is $34,500
C) is $32,000
D) cannot be determined
Allowance for Doubtful Accounts
Allowance for Doubtful Accounts is a contra-asset account that reflects the estimated amount of accounts receivable which may not be collectible.
Credit Sales
Transactions in which goods or services are sold and payment is deferred, allowing customers to purchase products or services on account.
Uncollectible Accounts
Accounts receivable that are recognized as uncollectible losses due to the inability to collect from the debtor.
- Pinpoint the requisite adjustments in the allowance for doubtful accounts.
- Assess the influence of credit sales on the estimate of uncollectible accounts.
Verified Answer
4% of $800,000 = $32,000.
Since the Allowance for Doubtful Accounts already has a debit balance of $2,500, we only need to adjust it by the additional estimated amount of uncollectible accounts, which is $32,000. Therefore, the adjusting entry will be a credit to the Allowance for Doubtful Accounts for $32,000.
The total balance of the Allowance for Doubtful Accounts after adjustment will be $34,500 (debit balance of $2,500 + credit of $32,000).
Learning Objectives
- Pinpoint the requisite adjustments in the allowance for doubtful accounts.
- Assess the influence of credit sales on the estimate of uncollectible accounts.
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