In 2018, Boyle Company had credit sales of $900,000. On January 1, 2018, Allowance for Doubtful Accounts had a credit balance of $22,500. During 2018, $36,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance balance should be 10% of the accounts receivable become uncollectible. What should be the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018 if the ending accounts receivable balance was $240,000?

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of the required ending balance for the Allowance for Doubtful Accounts based on the past experience: 
10% x $900,000 = $90,000

Then, we need to adjust the current balance of the Allowance for Doubtful Accounts by adding the necessary amount to achieve the required ending balance: 
Required Ending Balance - Current Balance = Adjustment 
$90,000 - $22,500 = $67,500

Finally, we need to subtract the amount of accounts receivable that was written off during the year from the adjustment amount: 
$67,500 - $36,000 = $31,500

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018 is $31,500. However, the question asks for the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018 if the ending accounts receivable balance was $240,000. So, we need to calculate the ending balance of the Allowance for Doubtful Accounts based on the new accounts receivable balance: 
10% x $240,000 = $24,000

Then, we need to adjust the current balance of the Allowance for Doubtful Accounts by adding the necessary amount to achieve the new ending balance: 
New Ending Balance - Current Balance = Adjustment 
$24,000 - $22,500 = $1,500

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2018 if the ending accounts receivable balance was $240,000 is $1,500.

The correct answer choice is A because $1,500 is the required adjustment for the ending accounts receivable balance of $240,000, but $37,500 is the adjustment needed to achieve the required ending balance of $90,000 without considering the specific accounts receivable balance.

In 2018, Boyle Company Had Credit Sales of $900,000