In 2014, Garrison Company had net credit sales of $1,500,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $36,000. During 2014, $60,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $400,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2014?

Question

Quizplus · Accepted Answer

The required adjustment to the Allowance for Doubtful Accounts at December 31, 2014 can be calculated using the percentage of receivables basis.

The balance in receivables at December 31, 2014 is $400,000, and past experience indicates that the allowance should be 10% of the balance in receivables.

10% of $400,000 = $40,000

To determine the required adjustment: 
Beginning balance in allowance + Bad debt expense - Amount of write-offs = Ending balance in allowance

$36,000 + X - $60,000 = $40,000

X = $64,000

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2014 is $64,000.

In 2014, Garrison Company Had Net Credit Sales of $1,500,000