Question

A company has $102,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) $920 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:a. $4,180b. $5,054c. $5,146d. $5,100e. $6,020

Answer 1

Answer:

A. $4,180

Explanation:

Desired balance in allowance account: $102,000 × 0.05 =$5,100

-Current balance in allowance account: 920 =$4,180

Journal entry

Debit to Bad Debts Expense $4,180

Credit Adjustment to allowance $4,180

Answer 2

Answer:

a. $4,180

Explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Closing Value of the Allowance for Doubtful Accounts will be as follow

Closing Balance = $102,000 x 5% = $5,100

As Allowance for Doubtful Accounts already have credit balance of $920, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $5,100 at the year end.

Adjustment Value = $5,100 - $920 = $4,180