Wellington Corp.has outstanding accounts receivable totaling $3 million as of
December 31 and sales on credit during the year of $15 million.There is also a debit balance of $12,000 in the allowance for doubtful accounts.If the company estimates that 8% of its outstanding receivables 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

The estimated bad debt expense can be calculated as follows:
$3,000,000 (outstanding receivables) x 8% (estimated uncollectible) = $240,000.

The balance in the allowance for doubtful accounts after the adjustment can be calculated as follows:
Beginning balance + Bad debt expense - Write-offs = Ending balance
$12,000 (beginning balance) + $240,000 (bad debt expense) - $0 (assuming no write-offs) = $252,000.

Therefore, the correct answer is (C) $252,000, since that is the ending balance in the allowance for doubtful accounts after the adjustment.