Edsel Inc. has the following unadjusted year end trial balance information available for 2014:
$$\begin{array} { l r }
\text { Cash sales } & \$ 400,000 \
\text { Credit sales } & 600,000 \
\text { Ending accounts receivable balance } & 180,000 \
\text { Ending allowance for uncollectibles } & 1,500 \
\text { Estimated uncollectibles } & 2 \%
\end{array}$$
-If Edsel uses the gross accounts receivable approach for estimating bad debt expense,the allowance for uncollectibles account after the proper adjustments to the accounts are recorded,should show a balance of
A)$2,600.
B)$3,600.
C)$5,600.
D)$6,200.

Question

Edsel Inc. has the following unadjusted year end trial balance information available for 2014:
$$\begin{array} { l r } 
\text { Cash sales } & \$ 400,000 \
\text { Credit sales } & 600,000 \
\text { Ending accounts receivable balance } & 180,000 \
\text { Ending allowance for uncollectibles } & 1,500 \
\text { Estimated uncollectibles } & 2 \%
\end{array}$$
-If Edsel uses the gross accounts receivable approach for estimating bad debt expense,the allowance for uncollectibles account after the proper adjustments to the accounts are recorded,should show a balance of
A)$2,600.
B)$3,600.
C)$5,600.
D)$6,200.

Quizplus · Accepted Answer

Using the gross accounts receivable approach, the allowance for uncollectibles is based on the ending accounts receivable balance. The calculation is $180,000 * 2\% = $3,600. This is the desired ending balance in the allowance for uncollectibles account, which directly answers the question.

Edsel Inc Has the Following Unadjusted Year End Trial Balance Information