Answer:
The adjustment for uncollectible accounts on December 31, 2018:
Debit Bad Debts Expense $10,250
Credit Allowance for Doubtful Account $10,250
Explanation:
In Pave Construction, 2018 is the first year of operations. The company provides services on account of $142,000. By the end of 2018, cash collections on these accounts total $101,000.
At the end of 2018, Accounts Receivable (the uncollected accounts) has debit balance of $41,000 ($142,000 - $101,000 = $41,000)
Pave estimates that 25% of the uncollected accounts will be bad debts
Bad Debts Expense = 25% x $41,000 = $10,250
The adjusting entry to record the bad debts expense will be:
Debit Bad Debts Expense $10,250
Credit Allowance for Doubtful Account $10,250
