Question

Question 4 StorageTek Corporation gathered the following information from its accounting records for the year ended December 31, 2016, prior to adjustment: Net credit sales for the year = $1,150,000 Accounts Receivable (Dec 31, 2016) - $93,000 Allowance for Uncollectible Accounts, prior to adjustment (Dec 31, 2016) = $6,000 debit balance Storage Tek Corporation uses the allowance method of accounting for bad debts and estimates bad debts at 3% of net credit sales. 1. Prepare the adjusting entry on December 31, 2016. 2. Determine the balance in the Allowance for Uncollectible Accounts account after the adjusting entry is recorded. 3. Show how the receivables would be reported on the December 31, 2016, Balance Sheet for Storage Tek Corporation.

Answer 1

1.

Allowance for 2016 would be

Net credit sales X 3% = 1,150,000 X 3% = 34,500

Entry would be

Particulars	Debit	Credit
Bad Debts Expense	$ 40,500
Allowance for Doubtful Accounts		$ 40,500

2.

After the adjustment the balance would be CREDIT 34,500

3.

Balnce Sheet (Excerpt)
Accounts Receivable	$   93,000
Less: Allowance for doubtful accounts	$ -34,500
Accounts Receivable, Net		$ 58,500