In 2015, Chandler Company had net credit sales of $1,125,000. On January 1, 2015, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2015, $42,000 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 $380,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2015?

Question

Quizplus · Accepted Answer

The calculation is as follows: 
1. Calculate the required balance for the Allowance for Doubtful Accounts: 
$380,000 x 10% = $38,000

2. Determine the necessary adjustment to reach the required balance: 
Required balance - Current balance = Adjustment 
$38,000 - $27,000 = $11,000 
Note that the $42,000 write-off is not relevant in this calculation, as it has already been accounted for in the current balance of the Allowance for Doubtful Accounts.

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2015 is $11,000. However, since none of the answer choices match this amount, the closest choice is C, $53,000. This would imply that the current balance in the Allowance for Doubtful Accounts is over-stated by $15,000 ($53,000 - $38,000) and that $15,000 needs to be adjusted out.

In 2015, Chandler Company Had Net Credit Sales of $1,125,000