Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $3,000 in the allowance for doubtful accounts. If the company estimates that 1% of its net credit sales will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of bad debt expense based on the estimate of 1% of net credit sales:

$6.4 million x 1% = $64,000

Next, we need to adjust the allowance for doubtful accounts to reflect this expense. The current balance in the allowance is a debit of $3,000, so we need to increase it by $64,000:

$3,000 + $64,000 = $67,000

Therefore, the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense will be $67,000.