A firm reported sales of $600,000 during the year and has a balance of $40,000 in its Accounts Receivable account at year-end.Prior to adjustment,Allowance for Doubtful Accounts has a credit balance of $600.The firm estimated its losses from uncollectible accounts to be one-half of 1 percent of sales.The entry to record the estimated losses from uncollectible accounts will include a credit to Allowance for Doubtful Accounts for
A) $6,000.
B) $3,600.
C) $3,000.
D) $2,400.

Question

Quizplus · Accepted Answer

One-half of 1 percent of $600,000 is $3,000. Since the Allowance for Doubtful Accounts has a credit balance of only $600 prior to adjustment, we need to credit the account for an additional $2,400 ($3,000 - $600) to bring the balance up to the estimated losses. Therefore, the entry to record estimated losses will include a credit of $2,400 to Allowance for Doubtful Accounts.

A Firm Reported Sales of $600,000 During the Year and Has