A firm reported sales of $720,000 for the year and Accounts Receivable has a balance of $40,000 at year-end. Prior to adjustment, Allowance for Doubtful Accounts has a credit balance of $300. The firm estimated its losses from uncollectible accounts to be one-half of 1 percent of sales. The entry to record the estimated losses from uncollectible accounts will include a credit to Allowance for Doubtful Accounts for
A)$3,900.
B)$3,600.
C)$7,200.
D)$3,300.

Question

Quizplus · Accepted Answer

The estimated losses from uncollectible accounts can be calculated as follows:
$720,000 x 0.5% = $3,600

To record this estimated loss, we need to debit Bad Debt Expense and credit Allowance for Doubtful Accounts. Since Allowance for Doubtful Accounts already has a credit balance of $300, we need to increase this balance to reflect the estimated loss of $3,600. Therefore, the entry will be:
Debit Bad Debt Expense $3,600
Credit Allowance for Doubtful Accounts $3,300
The correct answer is B.

A Firm Reported Sales of $720,000 for the Year and Accounts