Jumpin Corporation uses the percent-of-sales method to estimate uncollectibles.Net credit sales for the current year amount to $2,000,000,and management estimates 2% will be uncollectible.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $1,000.The amount of Uncollectible-Account Expense reported on the income statement will be:

Question

Quizplus · Accepted Answer

The amount of uncollectible-account expense is calculated as a percentage of net credit sales. Therefore, the amount of uncollectible-account expense can be calculated as:
$2,000,000 x 2% = $40,000
Since the allowance for uncollectible accounts has a debit balance of $1,000, it means that there is not enough allowance to cover the estimated uncollectible accounts of $40,000. Therefore, the allowance for uncollectible accounts needs to be increased by $40,000 - $1,000 = $39,000. The journal entry to record the adjustment would be:
Debit: Uncollectible-Account Expense $39,000
Credit: Allowance for Uncollectible Accounts $39,000
Therefore, the amount of uncollectible-account expense reported on the income statement would be $40,000.

Jumpin Corporation Uses the Percent-Of-Sales Method to Estimate Uncollectibles