On December 31, 2019, prior to adjustments, Accounts Receivable has a debit balance of $256,000 and the Allowance for Doubtful Accounts has a debit balance of $1,600. The firm estimates its losses from uncollectible accounts to be 5% of accounts receivable at the end of the year. The amount of the adjusting entry needed to record the estimated losses from uncollectible accounts is:
A)$12,800
B)$12,100
C)$14,400
D)$11,200

Question

Quizplus · Accepted Answer

To find the amount of the adjusting entry, we need to calculate the estimated losses from uncollectible accounts. We know that the firm estimates its losses to be 5% of accounts receivable, so we can calculate this as:

$256,000 x 5% = $12,800

This means that the firm expects to have $12,800 of uncollectible accounts at the end of the year.

To record this, we need to increase the Allowance for Doubtful Accounts by $12,800. Since the allowance currently has a debit balance of $1,600, we need to credit the allowance for $14,400 ($12,800 + $1,600).

The adjusting entry will be:

Debit Bad Debt Expense $12,800
Credit Allowance for Doubtful Accounts $14,400

Therefore, the answer is C.

On December 31, 2019, Prior to Adjustments, Accounts Receivable Has