Question

Oakpark, Inc.’s $180,000 Accounts Receivable balance at December 31 consisted of $160,000 current balances and $20,000 past-due balances. At December 31, the Allowance for Doubtful Accounts had a credit balance of $1,600. Oakpark estimated that 2% of current balances and 15% of past-due balances will prove uncollectible.The adjusting entry to record credit losses is:A) Bad Debts Expense 5800Allowance for Doubtful Accounts 5800B) Bad Debts Expense 4600Allowance for Doubtful Accounts 4600C) Bad Debts Expense Accounts Receivable 4200A/R 4200 D) Bad Debts Expense 7400Allowance for Doubtful Accounts 7400

Answer 1

Answer:

B) Bad Debts Expense 4600 Allowance for Doubtful Accounts 4600

Explanation:

Before passing the adjusting entry, we have to do the calculations which are shown below

The computation of the credit loss is shown below:

=  Estimated amount - Estimated uncollectible account - Account receivable ending balance

where,

Estimated amount = Account receivable ending balance × given percentage

= $160,000 × 2%

= $3,200

And, the estimated uncollectible amount = Past due balance × estimated percentage

= $20,000 × 15%

= $3,000

The other item values remain the same

Now put the values to the above formula

So, the value would be equal to

= $3,200 + $3,000 - $1,600

= $4,600

Now the journal entry would be

Bad debt expense A/c Dr $4,600

        To Allowance for Doubtful Accounts $4,600

(Being credit losses are recorded)