A firm reported sales of $300,000 during the year and has a balance of $20,000 in its Accounts Receivable account at year-end.Prior to adjustment,Allowance for Doubtful Accounts has a credit balance of $300.The firm estimated its losses from uncollectible accounts to be one-half of 1 percent of sales.The entry to record the estimated losses from uncollectible accounts will include a credit to Allowance for Doubtful Accounts for
A) $1,200.
B) $1,500.
C) $1,800.
D) $3,000.

Question

Quizplus · Accepted Answer

To calculate the estimated losses from uncollectible accounts, we need to multiply the sales by the estimated percentage of uncollectible accounts.

Estimated losses from uncollectible accounts = 0.5% x $300,000 = $1,500

Since Allowance for Doubtful Accounts has a credit balance, we need to reduce this balance by debiting it to show the estimated losses.

The entry to record the estimated losses from uncollectible accounts will be:

Debit: Bad Debt Expense $1,500 
Credit: Allowance for Doubtful Accounts $1,500

This will reduce the credit balance in the Allowance for Doubtful Accounts by $1,500, leaving a new balance of $1,200 ($300 credit balance + $1,500 debit for estimated losses). Therefore, the answer is B.

A Firm Reported Sales of $300,000 During the Year and Has