On December 31 of the current year,a company's unadjusted trial balance included the following: Accounts Receivable,debit balance of $88,790; Allowance for Doubtful Accounts,credit balance of $1,245.What amount should be debited to Bad Debts Expense,assuming 4% of outstanding accounts receivable at the end of the current year are considered uncollectible?
A)$1,245.00
B)$3,551.60
C)$4,796.60
D)$2,306.60
E)$87,545.00

Question

Quizplus · Accepted Answer

To calculate the amount to be debited to Bad Debts Expense, we need to first calculate the estimated amount of uncollectible accounts based on the given information.

Outstanding accounts receivable = $88,790 
Estimated uncollectible accounts = 4% x $88,790 = $3,551.60

We then need to adjust the Allowance for Doubtful Accounts to reflect this estimated amount:

Previous balance in Allowance for Doubtful Accounts = $1,245 
Add: Estimated uncollectible accounts = $3,551.60 
New balance in Allowance for Doubtful Accounts = $4,796.60

To adjust the accounts, we need to debit Bad Debts Expense and credit Allowance for Doubtful Accounts by the difference between the new and previous balances in the allowance account:

Bad Debts Expense = New balance in Allowance for Doubtful Accounts ($4,796.60) - Previous balance in Allowance for Doubtful Accounts ($1,245) 
= $3,551.60

Therefore, the correct answer is D) $2,306.60

On December 31 of the Current Year,a Company's Unadjusted Trial