A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 4% of outstanding receivables are uncollectible.The current balance (before adjustments)in the allowance for doubtful accounts is an $800 credit.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:
A)$2,800
B)$3,568
C)$3,632
D)$3,600
E)$4,400

Question

Quizplus · Accepted Answer

The adjustment needed is calculated as 4% of $90,000 (outstanding receivables) = $3,600. Since there's already an $800 credit balance in the allowance account, the adjustment needed is $3,600 - $800 = $2,800. This is the amount that should be debited to Bad Debts Expense to adjust the allowance to the correct level.

A Company Has $90,000 in Outstanding Accounts Receivable and It