A company has net sales of $50,000 during the year.At year end (before an adjustment is made),Allowance for Uncollectible Accounts has a credit balance of $2,500.If the company estimates that 3 percent of net sales are uncollectible and the company uses percentage of net sales method,what is the balance in the allowance account after the year-end adjustment has been made?

Question

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3% of $50,000 (net sales) is $1,500. Therefore, the allowance for uncollectible accounts should be increased by $1,500 from its current credit balance of $2,500. The adjusted credit balance in the allowance for uncollectible accounts should be $4,000.

A Company Has Net Sales of $50,000 During the Year