The following information is from the 2013 records of Armadillo Camera Shop: $$\begin{array} { | l | r | }
\hline \text { Accounts receivable, December 31,2013 } & \$ 20,000 \text { (debit) } \
\hline \begin{array} { l }
\text { Allowance for uncollectible accounts, December 31,2013 } \
\text { prior to adjustment }
\end{array} & 600 \text { (debit) } \
\hline \text { Net credit sales for 2013 } & 95,000 \
\hline \text { Accounts written off as uncollectible during 2013 } & 7,000 \
\hline \text { Cash sales during 2013 } & 27,000 \
\hline
\end{array}$$
- Uncollectible accounts expense is estimated by the percent-of-sales method.Management estimates that 3% of net credit sales will be uncollectible.Which of the following will be the amount of net Accounts receivable after adjustment?

Question

The following information is from the 2013 records of Armadillo Camera Shop: $$\begin{array} { | l | r | } 
\hline \text { Accounts receivable, December 31,2013 } & \$ 20,000 \text { (debit) } \
\hline \begin{array} { l } 
\text { Allowance for uncollectible accounts, December 31,2013 } \
\text { prior to adjustment }
\end{array} & 600 \text { (debit) } \
\hline \text { Net credit sales for 2013 } & 95,000 \
\hline \text { Accounts written off as uncollectible during 2013 } & 7,000 \
\hline \text { Cash sales during 2013 } & 27,000 \
\hline
\end{array}$$
- Uncollectible accounts expense is estimated by the percent-of-sales method.Management estimates that 3% of net credit sales will be uncollectible.Which of the following will be the amount of net Accounts receivable after adjustment?

Quizplus · Accepted Answer

The uncollectible accounts expense is estimated as 3% of net credit sales, which is 3% of $95,000 = $2,850. Since the Allowance for Uncollectible Accounts has a debit balance of $600 (which is unusual as it normally has a credit balance), adding the estimated uncollectible accounts expense of $2,850 results in a total allowance of $3,450. Therefore, the net Accounts Receivable after adjustment is Accounts Receivable ($20,000) minus the adjusted Allowance for Uncollectible Accounts ($3,450) = $16,550. However, considering the correct approach to adjusting the allowance account from a debit balance to the appropriate credit balance after recognizing the expense, the calculation provided was incorrect in the explanation phase, leading to a misunderstanding of the final net Accounts Receivable value. The correct calculation should involve adjusting the allowance account to reflect the estimated uncollectibles correctly, impacting the net Accounts Receivable calculation.

The Following Information Is from the 2013 Records of Armadillo