At the beginning of the year, Robert Company's Allowance for Impairment had a $3,200 credit balance. During January, a provision of 2% of sales was made for uncollectible accounts expense. During January, sales totaled $350,000, and $2,900 of accounts receivable were written off as worthless. No recoveries of accounts previously written off were made during the month. Robert's financial statements for January show:

Question

Quizplus · Accepted Answer

The provision for uncollectible accounts expense is calculated as $350,000 x 2% = $7,000. This amount is recorded as an expense and reduces the credit balance in the Allowance for Impairment account. 
New credit balance in Allowance for Impairment = $3,200 - $7,000 = -$3,800, which is not a valid balance. Therefore, the account is adjusted to a zero balance and any remaining expense is recorded as a debit to the Allowance for Impairment account. 
So, the entry would be: 
Uncollectible Accounts Expense: $7,000 
Allowance for Impairment: $3,200 
Allowance for Impairment: $3,800 (to adjust to a zero balance) 
Allowance for Impairment: $4,100 (to record the remaining expense)

Thus, Option B is the correct answer.

At the Beginning of the Year, Robert Company's Allowance for Impairment