Question

At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments. An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected. The balance of Allowance for Uncollectible Accounts after adjustment will be:
A. $1,000
B. $16,000
C. $14,000
D. $15,000

Answer 1

Answer:

C. $14,000

Explanation:

At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments.

An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected, which is 5% x $300,000 = $15,000

The balance of Allowance for Uncollectible Accounts after adjustment will be:  $1000 (debit) + $15,000 (credit) = $14,000 credit

Answer 2

Answer:

B) $16,000

Explanation:

Allowance for uncollectible accounts is a contra asset account that has a credit balance. It reduces accounts receivable by the amount of estimated bad debts.

In this case, since the account has a debit balance, and the estimated bad debts are $15,000 (= $300,000 x 5%), it must be credited by $15,000 + $1,000 = $16,000

The journal entry should be:

December 31, adjustments for bad debt expense.

Dr Bad debts expense 16,000

    Cr Allowance for uncollectible accounts 16,000