A&B Foods
Data for the year ended December 31, Year 1, are presented below.
$\begin{array}{lr}
\text { Sales (100\% on credit) } & \$ 2,100,000 \
\text { Sales returns } & 150,000 \
\text { Accounts receivable (December 31, Year 1) } & 420,000 \
\text { Allowance for doubtful accounts } & \
\quad \text { (before adjustment at December 31, Year 1) } & 25,000 \
\text { Estimated amount of uncollected accounts based on an aging analysis } & 75,000
\end{array}$
-Refer to the figure A&B Foods.If the company uses 4% of net credit sales to estimate its bad debts,what will be the balance in the allowance for doubtful accounts after the adjustment for bad debts?

Question

A&B Foods
Data for the year ended December 31, Year 1, are presented below.
 $\begin{array}{lr}
\text { Sales (100\% on credit) } & \$ 2,100,000 \
\text { Sales returns } & 150,000 \
\text { Accounts receivable (December 31, Year 1) } & 420,000 \
\text { Allowance for doubtful accounts } & \
\quad \text { (before adjustment at December 31, Year 1) } & 25,000 \
\text { Estimated amount of uncollected accounts based on an aging analysis } & 75,000
\end{array}$
-Refer to the figure A&B Foods.If the company uses 4% of net credit sales to estimate its bad debts,what will be the balance in the allowance for doubtful accounts after the adjustment for bad debts?

Quizplus · Accepted Answer

The net credit sales are $2,100,000 - $150,000 = $1,950,000. 4% of $1,950,000 is $78,000. The allowance before adjustment is $25,000, so the adjustment needed is $78,000 - $25,000 = $53,000. Adding this to the existing allowance gives $25,000 + $53,000 = $78,000. However, since the estimated uncollectible accounts are $75,000, the final balance should be $75,000.

A&B Foods Data for the Year Ended December 31, Year

A&B Foods
Data for the Year Ended December 31, Year