The following accounts were included on Mali Co.'s unadjusted trial balance at December 31, 2020:
$\begin{array}{llcc}
\text { } & \underline{\text { Debit }} & \underline{ \text { Credit} } \
\text { Accounts receivable.} &\$850,000&\
\text {Allowance for doubtful accounts } &11,000&\
\text { Net credit sales. } &&\$2,950,000\
\end{array}$

Mali estimates that 1.5 % of the gross accounts receivable will become uncollectible. After the proper adjustment at December 31, 2020, the allowance for doubtful accounts should have a credit balance of

Question

The following accounts were included on Mali Co.'s unadjusted trial balance at December 31, 2020: 
$\begin{array}{llcc}
  \text {  } &  \underline{\text { Debit }} & \underline{ \text {  Credit} }  \
 \text {  Accounts receivable.} &\$850,000&\
 \text {Allowance for doubtful accounts  } &11,000&\
 \text { Net credit sales. } &&\$2,950,000\
\end{array}$

Mali estimates that 1.5 % of the gross accounts receivable will become uncollectible. After the proper adjustment at December 31, 2020, the allowance for doubtful accounts should have a credit balance of

Quizplus · Accepted Answer

1. Mali estimates that 1.5% of the gross accounts receivable will become uncollectible.

2. Gross accounts receivable = $850,000

3. 1.5% of gross accounts receivable = 0.015 × $850,000 = $12,750

4. The allowance for doubtful accounts should be adjusted to equal the estimated uncollectible amount, so it should have a credit balance of $12,750.

5. The existing credit balance in the allowance for doubtful accounts is $11,000.

6. To adjust the allowance for doubtful accounts to the required balance, a credit entry of $1,750 (=$12,750-$11,000) is needed.

Therefore, the allowance for doubtful accounts should have a credit balance of $12,750 (existing balance of $11,000 + required adjustment of $1,750). So, the correct answer is B.

The Following Accounts Were Included on Mali Co Mali Estimates That 1