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On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.
-Which of the following answers correctly states the effect of the December 31,2015 adjusting entry for uncollectible accounts on the financial statements of the Loudoun Corporation?

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On December 31,2015,the Loudoun Corporation estimated that 3% of its credit sales of $112,500 would be uncollectible.Loudoun uses the allowance method of accounting for uncollectible accounts.In February 2016,one of Loudoun's customers failed to pay his $1,050 account and the account was written off.On April 4,2016,this customer paid Loudoun the $1,050.
-Which of the following answers correctly states the effect of the December 31,2015 adjusting entry for uncollectible accounts on the financial statements of the Loudoun Corporation?

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The adjusting entry for uncollectible accounts on December 31, 2015, would increase the allowance for doubtful accounts by $3,375 ($112,500 x 3%). This would result in a decrease in net income on the income statement and a decrease in accounts receivable and an increase in allowance for doubtful accounts on the balance sheet.

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