Question #3: During the current year, Carpenter Company had net credit sales of

Question

Question #3: During the current year, Carpenter Company had net credit sales of 1,125,000. On January 1, Allowance for Doubtful Accounts had a credit balance of $27,000. During the year, $45,000 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 $300,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31?

Explanation / Answer

Firm has a debit balance of uncollectible accounrs receivable written off and have a credit balance of $27,000 in allowance for doubtful accounrs.

Now after writing off, allowance for doubfull accounts have a debit balance of $18,000 i.e. ($45,000 - $27,000)

The allowance should be 10% of the balance in receivables i.e. at December 31 it is $300,000, so it should be $30,000 estimated to be uncollectible.

So, adjustment for Doubtful Accounts at December 31 will be $18,000 + $30,000 = $48,000.

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