Question

At the end of the current year, using the aging of receivable method, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $375. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? Multiple Choice Accounts Receivable 15,750 Bad Debts Expense 375 Sales 16,125 Bad Debts Expense 15,750 Allowance for Doubtful Accounts 15,750 Bad Debts Expense 16,125 Allowance for Doubtful Accounts 16,125 Accounts Receivable 16,125 Allowance for Doubtful Accounts 16,125 Bad Debts Expense 15,375 Allowance for Doubtful Accounts 15,375

Answer 1

Answer:

The correct option is Bad Debts Expense 16,125 Allowance for Doubtful Accounts 16,125.

Explanation:

Aging of receivable method is a way of putting the total amount of accounts receivable into a bucket based on aging of the accounts receivble and allocating credit risk loss percentage to each bucket. For example, Not due, 1-30 days, 31-60 days, over 60 days, with each class having 0%, 0.5%, 1%, 2% respectively.

The company had debit balance of $375 in the allowance for doubtful accounts and already estimated the $15,750 should be the portion of the accounts receivable that was deemed uncollectible. To reinstate the allowance account to $15,750, we need to add $375 to arrive at $16,125. So, the appropriate journals would be:

Debit Bad debt expense                                    $16,125

Credit Allowance for doubtful accounts           $16,125

(To record bad debt expense for the year)