In 2017 the Golic Co. had net credit sales of $900,000. On January 1, 2017, the Allowance for Doubtful Accounts had a credit balance of $22,500. During 2017, $36,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $240,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2017?
A)$24,000.
B)$37,500.
C)$46,500.
D)$36,000.

Question

Quizplus · Accepted Answer

First, let's calculate the required ending balance for the Allowance for Doubtful Accounts:
$240,000 x 10% = $24,000
Next, we need to adjust the current balance in the Allowance for Doubtful Accounts to reach the required ending balance:
Beginning balance (credit) = $22,500
Add: Estimated bad debt expense = $90,000 ($900,000 x 10%)
Less: Write-offs = $36,000
Adjusted balance (debit) = $76,500
To reach the required ending balance of $24,000, we need to credit the Allowance for Doubtful Accounts for $52,500 ($76,500 - $24,000). Therefore, the required adjustment is $37,500 (Choice B).