Allowance for Doubtful Accounts has an unadjusted balance of $400 at the end of the year, and uncollectible accounts expense is estimated at 1% of net sales.If net sales are $300,000, compute the amount of the adjustment to record the provision for doubtful accounts.
A) $400.
B) $3,400.
C) $3,000.
D) $2,600.

Question

Quizplus · Accepted Answer

To calculate the provision for doubtful accounts, we need to multiply uncollectible accounts expense by net sales:

Uncollectible accounts expense = 1% of $300,000 = $3,000

The adjustment needed to record the provision for doubtful accounts is the difference between the desired ending balance of Allowance for Doubtful Accounts and its current balance:

Desired ending balance = current balance + uncollectible accounts expense - write-offs
write-offs = 0 (not given)

Desired ending balance = $400 + $3,000 - $0 = $3,400

Therefore, the amount of the adjustment to record the provision for doubtful accounts is:

Adjustment = Desired ending balance - Current balance
Adjustment = $3,400 - $400 = $3,000

The correct choice is C, $3,000.

Allowance for Doubtful Accounts Has an Unadjusted Balance of $400