The following accounts were abstracted from Starr Co.'s unadjusted trial balance at December 31, 2014: Starr estimates that 4% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2014, the allowance for uncollectible accounts should have a credit balance of

Question

The following accounts were abstracted from Starr Co.'s unadjusted trial balance at December 31, 2014:  Starr estimates that 4% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2014, the allowance for uncollectible accounts should have a credit balance of

Quizplus · Accepted Answer

To calculate the necessary balance for the allowance for uncollectible accounts, we first need to determine the total amount of gross accounts receivable. This can be found by adding together the balance of Accounts Receivable ($800,000) and Notes Receivable ($120,000), for a total of $920,000.

Next, we need to determine what 4% of this total amount is, which is calculated as follows:

$920,000 x 0.04 = $36,800

This means that the necessary balance for the allowance for uncollectible accounts is $36,800.

Currently, the allowance for uncollectible accounts has a credit balance of $6,800 ($43,800 credit balance - $37,000 debit balance). To increase this balance to the necessary amount of $36,800, we need to credit the allowance account by an additional $30,000. Therefore, the adjusted credit balance for the allowance for uncollectible accounts should be $36,800 ($6,800 + $30,000).

The correct answer is D.

The Following Accounts Were Abstracted from Starr Co