McDaniel Company uses the income statement approach in estimating uncollectible.
ID: 2534752 • Letter: M
Question
McDaniel Company uses the income statement approach in estimating uncollectible. At the end of the year, McDaniel Corporation estimates that 2% of its credit sales of $700,000 will be uncollectible. Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment. The adjusting entry involves a debit to
Bad Debts Expense and a credit to Accounts Receivable for $12,000.
Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $14,000.
Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $16,000.
D. Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $12,000.
A.Bad Debts Expense and a credit to Accounts Receivable for $12,000.
B.Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $14,000.
C.Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $16,000.
D. Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $12,000.
Explanation / Answer
Answer is option (B). Debit Bad Debts Expesne and a credit to Allwoance for Doubtful Accounts for $14000
Explanation;
Credit sales = $700000
2% will be uncollectible
So amount of uncollectible ($700000 * .02) = $14000
Following adjusting entry is made;
Bad debts expesne
$14000
Allowance for doubtful accounts
$14000
Under this method existing balance of allowance for doubtful accounts is ignored that is why adjusting entry will be made for full uncollectible.
Bad debts expesne
$14000
Allowance for doubtful accounts
$14000