On December 31, prior to adjustments, the balance of Accounts Receivable is $22,000 and Allowance for Doubtful Accounts has a credit balance of $135. The firm estimates its losses from uncollectible accounts to be 4% of accounts receivable at the end of the year. The adjusting entry needed to record the estimated losses from uncollectible accounts is
A)$135.
B)$1,015.
C)$745.
D)$880.

Question

Quizplus · Accepted Answer

The adjusting entry for estimated losses from uncollectible accounts is calculated as follows:

Accounts Receivable balance at the end of the year = $22,000
Loss estimation percentage = 4%
Estimated uncollectible accounts = 4% x $22,000 = $880

Since the Allowance for Doubtful Accounts already has a credit balance of $135, we only need to increase it by the calculated amount of $880 - $135 = $745.

Therefore, the adjusting entry needed to record the estimated losses from uncollectible accounts is:

Debit: Bad debt expense $745
Credit: Allowance for doubtful accounts $745.

The correct answer is C.

On December 31, Prior to Adjustments, the Balance of Accounts