In 2010, Garrison Company had net credit sales of $1,125,000. On January 1, 2010, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2010, $45,000 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 $300,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2010?
A) $30,000
B) $112,500
C) $48,000
D) $45,000

Question

Quizplus · Accepted Answer

First, we need to calculate the required balance of the allowance for doubtful accounts using the percentage of receivables basis: 
$300,000 x 10% = $30,000 
Next, we need to adjust the balance of the allowance for doubtful accounts for the write-offs during the year: 
$27,000 - $45,000 = -$18,000 (a debit balance) 
This means the company overestimated the allowance for doubtful accounts and needs to decrease it by $18,000. 
Finally, we need to adjust the allowance for doubtful accounts to its required balance: 
$30,000 - (-$18,000) = $48,000 
Therefore, the required adjustment to the allowance for doubtful accounts at December 31, 2010, is $48,000, which is option C.

In 2010, Garrison Company Had Net Credit Sales of $1,125,000