Question

On December 31, 2019 before adjusting entries, Accounts Receivable for California Company had a debit balance of $200,000, and the Allowance for Doubtful Accounts had a credit balance of $6,000. Credit sales for the year were $1,600,000.

If credit losses are estimated at 1% of credit sales:


a.The balance of the Allowance for Doubtful Accounts will be $10,000 after adjustment.

b.The balance of the Allowance for Doubtful Accounts will be $22,000 after adjustment.

c.The balance of the Allowance for Doubtful Accounts will be $16,000 after adjustment.

d.Bad Debts Expense for the year will be $22,000.

Answer 1

Answer:

Allowance for doubtful debts account:

Opening balance: $6,000

Add adjustments in the year ?

Closing balance = 1% x $1,600,000 = $16,000

Adjustment in the year is $10,000

Balance closing the year is $16,000

Answer is C

Answer 2

If credit losses are estimated at 1% of credit sales: b. The balance of the Allowance for Doubtful Accounts will be $22,000 after adjustment.

Using this formula

Allowance for doubtful account balance=(Credit sales× Estimated credit sales %)+ Credit balance

Let plug in the formula

Allowance for doubtful account balance=($1,600,000×1%)+$6,000

Allowance for doubtful account balance=$16,000+$6,000

Allowance for doubtful account balance=$22,000

Inconclusion If credit losses are estimated at 1% of credit sales: b. The balance of the Allowance for Doubtful Accounts will be $22,000 after adjustment.

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