The general ledger account for Accounts Receivable shows a debit balance of $50,

Question

The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for Uncollectible Accounts has a credit balance of $3,000. Net sales for the year were $500,000. In the past, 3 percent of sales have proved uncollectible, and an aging of accounts receivable resulted in an estimate of $20,000 of uncollectible accounts receivable.

Using the percentage of net sales method, the Allowance for Uncollectible Accounts balance (after adjustment) would be

a. $12,000. b. $20,000. c. $18,000. d. $15,000.

Explanation / Answer

Accounts Receivable = 50000

Allowance for Uncollectible Accounts = 3000

Net sales = 500000

Using the percentage of net sales method,

Bad Debt Expenses = Net sales*3%

Bad Debt Expenses = 500000*3%

Bad Debt Expenses =15000

Allowance for Uncollectible Accounts (after adjustment) = Allowance for Uncollectible Accounts before adjustment + Bad Debt Expenses

Allowance for Uncollectible Accounts (after adjustment) = 3000+15000

Allowance for Uncollectible Accounts (after adjustment) = 18000

Answer

c. $18,000.

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