Putnam Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $1,400,000 and $70,000 (Cr.), respectively.An aging of accounts receivable indicated that $108,000 are expected to become uncollectible.The amount of the adjusting entry for bad debts at December 31 is

Question

Quizplus · Accepted Answer

The adjusting entry for bad debts at December 31 is calculated as the difference between the required ending balance in the allowance for doubtful accounts and the current balance. The required ending balance is calculated as the expected uncollectible amount from the aging analysis, which is $108,000. The current balance in the allowance account is a credit of $70,000, so the required increase is $108,000 - $70,000 = $38,000. Therefore, the adjusting entry is a debit to Bad Debt Expense for $38,000 and a credit to Allowance for Doubtful Accounts for $38,000, which reduces the net balance in accounts receivable to $1,362,000 ($1,400,000 - $38,000). Choice B is correct.

Putnam Company's Account Balances at December 31 for Accounts Receivable