StorageTek Corporation gathered the following information from its accounting re
ID: 2459141 • Letter: S
Question
StorageTek Corporation gathered the following information from its accounting records for the year ended December, 31, 2016, prior to adjustment: Net credit sales for the year = $1,150,000 Accounts Receivable (Dec 31, 2016) = $93,000 Allowance for Uncollectible Accounts, prior to adjustment (Dec 31, 2016) = $6,000 debit balance StorageTex Corporation uses the allowance method of accounting for bad debts and estimates bad debts at 2.5% of net credit sales.
Required: 1. Prepare the adjusting entry on December 31, 2016.
2. Determine the balance in the Allowance for Uncollectible Accounts account after the adjusting entry is recorded.
3. Show how the receivables would be reported on the December 31, 2016, Balance Sheet for Storage Tek Corporation.
Explanation / Answer
Bad debts A/c Dr 28,750
To Allowance for doubtful debts 28,750
(Being 2.5% of net credit sales is provided for doubtful debt allowance)
Balance in allowance for doubtful debts account
Opening debit balance : 6,000
Created for the period 28,750
Closing balance 22,750
Receivables reported in Balance Sheet:
Current Assets:
Accounts receivable 93,000
Less: Allowance for uncollected accounts: 22,750
Net Receivables 70,250