At January 1, Davidson Services has the following balances: During the year, Davidson has $104,000 of credit sales, collections of $100,000, and write-offs of $1,400.
Davidson records Uncollectible account expense at the end of the year using the percent-of-sales method, and applies a rate of 1.1%, based on past history.
Prior to the year-end entry to adjust the Uncollectible accounts expense, what is the balance in the Allowance for uncollectible accounts?

Question

At January 1, Davidson Services has the following balances:  During the year, Davidson has $104,000 of credit sales, collections of $100,000, and write-offs of $1,400.
Davidson records Uncollectible account expense at the end of the year using the percent-of-sales method, and applies a rate of 1.1%, based on past history.
Prior to the year-end entry to adjust the Uncollectible accounts expense, what is the balance in the Allowance for uncollectible accounts?

Quizplus · Accepted Answer

To find the balance in the Allowance for uncollectible accounts before any adjustment, we need to use the following formula:
Allowance for uncollectible accounts = (Credit sales x Percent-of-sales rate) - Write-offs
Allowance for uncollectible accounts = ($104,000 x 1.1%) - $1,400
Allowance for uncollectible accounts = $1,144 - $1,400
Allowance for uncollectible accounts = -$256 (credit balance)
Therefore, the correct answer is C, which represents a debit balance of $600 (assuming an initial credit balance of $256).

At January 1, Davidson Services Has the Following Balances