n 201X Wilkinson Company had net credit sales of $1,125,000. On January 1, 201X,

Question

n 201X Wilkinson Company had net credit sales of $1,125,000. On January 1, 201X, Allowance for Doubtful Accounts had a credit balance of $27,000. During 201X, $45,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $300,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 201X?

Question 19 options:

$30,000

$48,000

$112,500

$45,000

$30,000

$48,000

$112,500

$45,000

Explanation / Answer

Answer: $48000

Allowance for Doubtful Accounts had a credit balance of 27,000. After the write-off of $45,000:
Dr Allowance for Doubtful Accounts 45,000
Cr Accounts Receivable 45,000

There is now a debit balance of $18,000 in Allowance for Doubtful Accounts.

The amount that is estimated to be uncollectible is 300,000 x 10% = $30,000. So you have to make an entry that will convert that debit balance of 18,000 to a credit balance of 30,000.
Dr Bad Debt Expense 48,000
Cr Allowance for Doubtful Accounts 48,000

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