In 2021, Chandler Company had net credit sales of $1,125,000.On January 1, 2021, the Allowance for Doubtful Accounts had a credit balance of $27,000.During 2021, $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, 2021?

Question

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First, we need to calculate the balance in the Allowance for Doubtful Accounts before any adjustments.  
Starting balance on January 1: $27,000
Add: Bad debt expense for the year (10% of $1,125,000 in net credit sales) = $112,500
Subtract: Amount of accounts written off during the year = $42,000
Ending balance before adjustment: $97,500

Next, we need to calculate the required adjustment to the Allowance for Doubtful Accounts based on the 10% of accounts receivable method.

10% of $380,000 in accounts receivable = $38,000

To get from the current balance of $97,500 to the required balance of $38,000, we need to subtract $59,500 from the Allowance for Doubtful Accounts.

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2021 is $59,500.

To calculate the adjusted balance in the Allowance for Doubtful Accounts at December 31, we subtract the required adjustment from the current balance:

$97,500 - $59,500 = $38,000

Therefore, the final balance in the Allowance for Doubtful Accounts at December 31, 2021 is $38,000.

In 2021, Chandler Company Had Net Credit Sales of $1,125,000