Question

Allowance for Doubtful Accounts has a debit balance of $2,500 at the end of the year (before adjustment), and bad debt expense is estimated at 4% of credit sales.  If net credit sales are $800,000, the amount of the adjusting entry to record the estimate of the uncollectible accounts is

Options:

a. $29500

b. $34500

c. $32000

d. cannot be determined

Answer 1

Allowance for Doubtful Accounts = Uncollectible debt amount + Debit balance of allowance of doubtful debt

= 4% of credit sales + 2500

= 32,000 + 2500 = 34,500

as given in question Bad debt expense is 4% of credit sales so that will be uncollectible amount

= 4% of credit sales = 4% of $800,000

=$32,000