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Debit Credit
Accounts receivable $1,000,000
Allowance for uncollectible accounts 8,000
Net credit sales $3,000,000
XYZ estimates that3% of the gross accounts receivable will become uncollectible. After adjustment at December31, the allowance for uncollectible accounts should have a credit balance of
A. $90,000
B. $82,000
C. $38,000
D. $30,000
Answer option C >>>>>>>>>>>>>>>>>> $38,000
uncollectible accounts should have estimate -3%×1,000,000 = $30,000.
D. 30,000
When estimating allowance for doubtful accounts using % of accounts receivable, answer would become the ending balance of the allowance for doubtful account. Unlike when using % of credit sales where the answer is the bad debts charged during the period, which will be adjusted to the beginning balance and the accounts written off to get the ending balance of allowance for bad debts.
correct answer is( D) 30000
The answer should be A which is $90,000
Allowance for uncollectible accounts AED38000
Given
A/R1000,000
Allowance for doubtful account before adjustment8,000
Est. allowance for doubtful account percentage3% of gross A/R
Then the estimated allowance for doubtful account is1000,000 *3% =30,000
Amount to be adjusted = (30,000 -8,000 =22,000
Adjusting entry
Doubtful account expense 22,000
Allowance for doubtful account 22,000
So, choice D is the answer for this question
Percentage of accounts receivable method is called balance sheet approach when we use it . The allowance for uncollectible account should equal the percentage of the equation .
the allowance = balance of accounts receivable *3% = $30000
so the entry is : debit / bad debts expense22000 and credit / allowance for uncollectible account $22000 .
according to GAAP
Answer D is the right answer
