A firm\'s $90,000 Accounts Receivable balance at December 31 consisted of $80,00

Question

A firm's $90,000 Accounts Receivable balance at December 31 consisted of $80,000 current balances and $10,000 past-due balances. At December 31, the Allowance for Uncollectible Accounts had a credit balance of $800. The firm estimated that 2% of current balances and 15% of past-due balances will prove uncollectible. The adjusting entry to record credit losses is:

Select one:

A.

Bad Debts Expense

2,900

Allowance for Uncollectible Accounts

2,900

B.

Bad Debts Expense

2,300

Allowance for Uncollectible Accounts

2,300

C.

Bad Debts Expense

2,100

Allowance for Uncollectible Accounts

2,100

D.

Bad Debts Expense

3,700

Allowance for Uncollectible Accounts

3,700

E. None of the above

Bad Debts Expense

2,900

Explanation / Answer

Calculation of reqd Allowance

= 2% of current + 15 % of past

= (80000*2%) + ( 10000*15%)

= 1600 + 1500 = 3100

Opening balance = 800$

Adjustment entry amount = 3100 - 800 = 2300$

Right answer = OPTION B

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