Using its aging of accounts receivable,Age Old,Inc.estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectible.Prior to making its adjusting entry,the unadjusted Allowance for Doubtful Accounts has a credit balance of $1,000.After the adjustment,the:
A)Allowance for Doubtful Accounts will have a $90,000 credit balance.
B)Allowance for Doubtful Accounts will have an $89,000 credit balance.
C)Allowance for Doubtful Accounts will have a $91,000 credit balance.
D)Bad Debt Expense will equal $90,000.

Question

Quizplus · Accepted Answer

The aging of accounts receivable method focuses on estimating the ending balance to be reported in the Allowance for Doubtful Accounts.To compute the amount of the adjustment,you must determine how much to increase (credit)the Allowance for Doubtful Accounts to reach the desired adjusted balance.
Ending balance in Allowance for Doubtful Accounts = Unadjusted credit (debit)balance in Allowance for Doubtful Accounts + Bad Debt Expense
Bad Debt Expense = Ending balance in Allowance for Doubtful Accounts − Unadjusted ending credit (debit)balance in Allowance for Doubtful Accounts
= $90,000 − $1,000 = $89,000

Using Its Aging of Accounts Receivable,Age Old,Inc