Question

Tanning Company analyzes its receivables to estimate bad debt expense The accounts receivable balance is $300 000 and credit sales are $1,000,000. An Aging of accounts receivable shows that approximately 10 of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?
A Bad Debt Expense 26,000 Allowance for Doubtful 26,000 Accounts
B.Bad Debt Expense 30,000 Allowance for Doubtful 30,000 Accounts
C.Bad Debt Expense 17,000 Allowance for Doubtful 17,000 Accounts
D.Bad Debt Expense 20,000 Allowancefor Doubtful 20,000 Accounts

Answer 1

Answer: Bad Debt Expense 28,000 Allowance for Doubtful Accounts 28,000

Explanation:

Account receivable = 300,000

Percentage uncollectible = 10%

Current balance = 2000

Adjustment to allowance for uncollectible accounts is given by :

(Account receivable ×percentage uncollectible) - current balance

(300,000 × 10%) - 2000

(300,000 × 0.1) × 2000

30,000 - 2000 = 28,000

Therefore, adjustment should be :

bad debt expense debit 28,000

allowance for doubful account credit 28,000