In 2018, Warehouse 13 had net credit sales of $750,000. On January 1, 2018, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2018, $29,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $150,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018?

Question

Quizplus · Accepted Answer

To find the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018, we need to follow these steps:

1. Calculate the current balance in the allowance account.

The allowance account had a credit balance of $16,000 at January 1, 2018. During 2018, $29,000 of uncollectible accounts were written off, so the balance at December 31, 2018 would be:

$16,000 - $29,000 = -$13,000

Since the balance is negative, it means that there is not enough allowance to cover the expected uncollectible accounts.

2. Calculate the required balance in the allowance account.

The past experience indicates that the allowance should be 10% of the balance in receivables, which is $150,000 at December 31, 2018.

10% x $150,000 = $15,000

This means that there should be at least $15,000 in the allowance account at December 31, 2018.

3. Calculate the required adjustment to the allowance account.

To bring the allowance balance up to the required level, we need to increase it by:

$15,000 - (-$13,000) = $28,000

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018 is $28,000.

The correct answer is C.

In 2018, Warehouse 13 Had Net Credit Sales of $750,000