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Cerrena [4.2K]
3 years ago
13

Grayhawk Company reported net credit sales of $588,000 for the year ending December 31, 2019. On January 1, 2019, the Allowance

for Doubtful Accounts had a credit balance of $14,400. During 2019, $24,000 of uncollectible accounts receivable were written off. Grayhawk has experienced bad debt losses of 3% of credit sales in prior periods. Using the percentage of credit sales method, what is the adjusted balance in the Allowance for Doubtful Accounts at December 31, 2019?
A) $17, 640


B) $8,400


C) $27,600


D) $8,040
Business
1 answer:
Sever21 [200]3 years ago
5 0

Answer:

D) $8,040

Explanation:

<u>Credit Sales Method:</u>

Bad Debt Losses = 3% of Credit Sales

Bad Debt Losses = 0.03 x $588,000

Bad Debt Losses = $17,640

<u>Adjusted balance in the Allowance for Doubtful Accounts:</u>

Bad Debt Losses - (uncollectible accounts receivable - Allowance for Doubtful Accounts)

$17,640 - ($24,000 - $14,400)

$17,640 - $9,600

$8,040

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Because the company already has a DEBIT balance ($2,850) in the Allowance for Doubtful Accounts  

it's necessary to register an entry that COMPENSATE ($8,250) the existing value and reflect the value estimated as bad debts ($5,400 = $8,250-$2,850).  

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"When customers buy products on credits but the company cannot collect the debt, then it's necessary to cancel the unpaid invoice as uncollectible."

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When the company has the percentage of uncollectible accounts, the required journal entry is Bad Expenses (debit) with Reserve for Bad Accounts (credit)

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