Allowance for Doubtful Accounts has a debit balance of $2,500 at the end of the year (before adjustment), and bad debt expense is estimated at 4% of credit sales. If credit sales are $800,000, the amount of the adjusting entry to record the estimate of the uncollectible accounts
A) is $29,500
B) is $34,500
C) is $32,000
D) cannot be determined

Question

Quizplus · Accepted Answer

To estimate the uncollectible accounts, we need to multiply the credit sales by the estimated percentage of bad debt expense. 
4% of $800,000 = $32,000. 
Since the Allowance for Doubtful Accounts already has a debit balance of $2,500, we only need to adjust it by the additional estimated amount of uncollectible accounts, which is $32,000. Therefore, the adjusting entry will be a credit to the Allowance for Doubtful Accounts for $32,000. 
The total balance of the Allowance for Doubtful Accounts after adjustment will be $34,500 (debit balance of $2,500 + credit of $32,000).

Allowance for Doubtful Accounts Has a Debit Balance of $2,500