In 2017 Wilkinson Company had net credit sales of $2,250,000. On January 1, 2017, Allowance for Doubtful Accounts had a credit balance of $54,000. During 2017, $90,000 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 $600,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2017?
A)$ 60,000
B)$ 25,000
C)$ 96,000
D)$ 90,000

Question

Quizplus · Accepted Answer

Step 1: Calculate the required balance of Allowance for Doubtful Accounts based on the percentage of receivables basis.

The accounts receivable balance at December 31 was $600,000, so the required balance of Allowance for Doubtful Accounts is:

$600,000 x 10% = $60,000

Step 2: Calculate the current balance of Allowance for Doubtful Accounts after writing off uncollectible accounts receivable.

The credit balance of Allowance for Doubtful Accounts on January 1 was $54,000, and $90,000 of uncollectible accounts receivable were written off during the year.

So, the current balance of Allowance for Doubtful Accounts is:

$54,000 - $90,000 = -$36,000

Step 3: Calculate the required adjustment to the Allowance for Doubtful Accounts at December 31, 2017.

To bring the balance of Allowance for Doubtful Accounts to the required level calculated in Step 1, an adjustment of $96,000 ($60,000 - (-$36,000)) is needed.

Therefore, the correct answer is C) $96,000.

In 2017 Wilkinson Company Had Net Credit Sales of $2,250,000