Question

A company has total accounts receivable of $500,000 for the year and it estimates that uncollectible accounts will be 3% of accounts receivable. If Allowance for Doubtful Accounts has a credit balance of $2,000 prior to adjustment, its balance after adjustment will be a credit of
a.$17,000.
b.$13,000.
c.$14,940.
d.$15,000.

Answer 1

Answer:

Option (d) is correct.

Explanation:

Given that,

Total accounts receivable = $500,000

Credit balance of Allowance for Doubtful Accounts = $2,000

Estimates uncollectible accounts:

= 3% of accounts receivable

= 0.03 × $500,000

= $15,000

The closing balance after adjustment is the latest estimates:

= 3% of accounts receivable

= $15,000

$15,000 includes both the opening credit balance of allowance for doubtful accounts worth of $2,000 and the current year adjustment of $13,000.