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On January 1,2016 Grande Company had a $16,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account.During 2016,Grande provided $104,000 of service on account.The company collected $97,000 cash from accounts receivable.Uncollectible accounts are estimated to be 2% of sales on account.
-The amount of uncollectible accounts expense recognized on the 2016 income statement is:
A)$320.
B)$1,000.
C)$2,080.
D)$1,940.

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Quizplus · Accepted Answer

The estimated amount of uncollectible accounts is 2% of sales on account, which would be $2,080 ($104,000 x 2%). This amount would be recognized as an expense on the income statement. Since the company had a zero balance in the Allowance for Doubtful Accounts account at the beginning of the year, they would need to create an allowance entry for $2,080 to recognize the expected bad debt expense. The entry would be:

Debit Bad Debt Expense $2,080 
Credit Allowance for Doubtful Accounts $2,080

Since no specific allowance entry was given in the question, we can assume that the company did not make an estimate during the year and that the expense recognized would be based solely on the estimated percentage of sales. Therefore, the amount of uncollectible accounts expense recognized on the 2016 income statement would be $2,080.

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