Allowance for Doubtful Accounts has a debit balance of $500 at the end of the year,before adjustments.Sales for the year amounted to $870,000,sales discounts amounted to $30,000 and sales returns and allowances amounted to $40,000.If the uncollectible accounts expense is estimated at 2% of net sales,the amount of the adjusting entry to record the estimated losses from uncollectible accounts will be
A) $17,400
B) $16,500
C) $16,000
D) $15,500

Question

Quizplus · Accepted Answer

The first step is to calculate the net sales, which is:
Net sales = Sales - Sales discounts - Sales returns and allowances
Net sales = $870,000 - $30,000 - $40,000
Net sales = $800,000

The uncollectible accounts expense is estimated at 2% of net sales, which is:
Uncollectible accounts expense = 2% x $800,000
Uncollectible accounts expense = $16,000

To record the estimated losses from uncollectible accounts, we need to increase the Allowance for Doubtful Accounts. Since the Allowance for Doubtful Accounts has a debit balance of $500, we need to credit it by $16,000 - $500 = $15,500. Therefore, the adjusting entry is:
Debit Uncollectible accounts expense $16,000
Credit Allowance for doubtful accounts $15,500

Allowance for Doubtful Accounts Has a Debit Balance of $500