In 2021, Boyle Company had credit sales of $900,000.On January 1, 2021, Allowance for Doubtful Accounts had a credit balance of $22,500.During 2021, $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, 2021, if the ending accounts receivable balance was $240,000?

Question

Quizplus · Accepted Answer

First, we need to calculate the required balance for the Allowance for Doubtful Accounts based on past experience:

Accounts Receivable at December 31, 2021 = $240,000 
Required Allowance Balance = 10% of $240,000 = $24,000

Next, we need to adjust the current balance in the Allowance for Doubtful Accounts:

Beginning Allowance Balance (January 1, 2021) = $22,500 
Add: Required Adjustment = $24,000 
Subtract: Amount of Accounts Written Off = $36,000

Adjusted Allowance Balance (December 31, 2021) = $10,500

To get the required adjustment, we need to solve for the difference between the adjusted and current allowance balances:

Required Adjustment = Adjusted Allowance Balance - Beginning Allowance Balance + Amount of Accounts Written Off 
Required Adjustment = $10,500 - $22,500 + $36,000 
Required Adjustment = $24,000

Therefore, the answer is A) $37,500.

In 2021, Boyle Company Had Credit Sales of $900,000