Question

A company has $107,000 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) $970 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for: $4,600
$5,400
$6,200
$6,800
None of these

what would be the correct answer choice?

Answer 1

Answer:

None of these

what would be the correct answer choice?

• Assuming 5% of outstanding accounts receivable, the journal entry:

Dr Bad Debt Expense $ 6.320  

Cr Allowance for Uncollectible Accounts  $ 6.320

Explanation:

If the company applies the allowance method, it means that the account  

Allowance for Uncollectible Accounts must show as balance the  5% of outstanding receivables as debit.

Because the company has a credit balance in that account it's necessary to register an entry  that compensate the value as credit and reflect as debit the value estimated as 5% of account receivable.

• Initial Balance  

Dr Accounts Receivable                              $ 107,000

Dr Allowance for Uncollectible Accounts  $ 970

• The journal entry adjustment will be:

Dr Bad Debt Expense                                    $ 6,320  

Cr Allowance for Uncollectible Accounts  $ 6,320

• FINAL Balance  

Dr Accounts Receivable                                    $ 107,000  

Cr Allowance for Uncollectible Accounts  $ 5,350