Gabby Company\'s Accounts Receivable Account has a debit balance of $895,000, an
ID: 2389251 • Letter: G
Question
Gabby Company's Accounts Receivable Account has a debit balance of $895,000, and the Allowance for Doubtful Accounts has a debit balance of $1,500 at the end of the year before adjustment. An analysis of their customers' accounts estimates that 2% of year end account receivable will be uncollectible. The adjusting journal entry for doubtful accounts will include:Answer
A. Debit Bad Debts Expense $19,400
B. Credit Allowance for Doubtful Accounts, $17,900
C. Credit Allowance for Doubtful Accounts, $16,400
D. Debit Bad Debts Expense $16,400
Explanation / Answer
895,000*0.02 = 17,900. This is what the credit balance of the allowance account should be. Currently allowance has a debit balance of 1,500. So to get a credit balance, you would need to increase the allowance account by 1500 + 17900 = 19,400. the entry would be: Debit: Bad Debt Expense 19,400 Credit: Allowance 19,400. Answer is A, Debit bad debt expense 19,400
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