Question

Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $344,000 and credit sales are $1,000,000. An aging of accounts receivable shows that approximately 5% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,600 before adjustment?
a. Bad Debt Expense 15,600 Allowance for Doubtful Accounts 15,600.
b. Bad Debt Expense 14,100 Allowance for Doubtful Accounts 14,100.
c. Bad Debt Expense 14,600 Allowance for Doubtful Accounts 14,600.
d. Bad Debt Expense 13,600 Allowance for Doubtful Accounts 13,600.

Answer 1

Answer:

c. Bad Debt Expense 14,600 Allowance for Doubtful Accounts 14,600.

Explanation:

As for the information provided,

outstanding balance of accounts receivables = $344,000

Also that the uncollectible balance of accounts receivables is estimated = 5% of outstanding balance.

Therefore, balance at year end of allowance for uncollectible shall be = $344,000 $\times$ 5% = $17,200

Provided existing balance of allowance = $2,600

Thus, entry shall be for amounting = $17,200 - $2,600 = $14,600.