The following information is from the 2019 records of Fast Lane Racing Gear: $\begin{array}{|l|c|}
\hline \text { Accounts receivable, December } 31,2019 & \$ 40,000 \text { (debit) } \
\hline \begin{array}{l}
\text { Allowance for Bad Debts, December } 31,2019 \
\text { prior to adjustment }
\end{array} & 1,700 \text { (debit) } \
\hline \text { Net credit sales for } 2019 & 178,000 \
\hline \text { Accounts written off as uncollectible during } \
2019& 17,000\
\hline\text { Cash sales during } 2019 & 32,000\
\hline
\end{array}$ Bad debts expense is estimated by the aging-of-receivables method. Management estimates that $7,000 of accounts receivable will be uncollectible. Calculate the ending balance of Allowance for Bad Debts, after the adjustment for bad debts expense, at December 31, 2019.

Question

The following information is from the 2019 records of Fast Lane Racing Gear: $\begin{array}{|l|c|}
\hline \text { Accounts receivable, December } 31,2019 & \$ 40,000 \text { (debit) } \
\hline \begin{array}{l}
\text { Allowance for Bad Debts, December } 31,2019 \
\text { prior to adjustment }
\end{array} & 1,700 \text { (debit) } \
\hline \text { Net credit sales for } 2019 & 178,000 \
\hline \text { Accounts written off as uncollectible during }  \
 2019& 17,000\
\hline\text { Cash sales during } 2019 & 32,000\
\hline
\end{array}$ Bad debts expense is estimated by the aging-of-receivables method. Management estimates that $7,000 of accounts receivable will be uncollectible. Calculate the ending balance of Allowance for Bad Debts, after the adjustment for bad debts expense, at December 31, 2019.

Quizplus · Accepted Answer

The ending balance of Allowance for Bad Debts, after adjustment, is calculated by taking the estimated uncollectible accounts receivable ($7,000) and adjusting for any existing balance in the allowance account. Since the allowance account had a debit balance of $1,700 (which is unusual as it typically has a credit balance), this amount needs to be added to the estimated uncollectibles to correct the account balance. However, the correct approach to finding the ending balance is to simply set the allowance to match the estimated uncollectibles directly when using the aging-of-receivables method, which in this case is $7,000, ignoring the initial debit balance for the purpose of this calculation.

The Following Information Is from the 2019 Records of Fast