Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a credit balance of $1,000.Net sales for the year were $500,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts.
-Using the percentage of net sales method,the Allowance for Uncollectible Accounts balance (after adjustment)would be
A)$8,880.
B)$9,880.
C)$10,880.
D)$1,000.

Question

Quizplus · Accepted Answer

The percentage of net sales method estimates the required balance in the allowance for uncollectible accounts based on a percentage of net sales. In this case, 2% of $500,000 in net sales is $10,000. However, an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts. Therefore, the allowance for uncollectible accounts balance (after adjustment) would be $13,500 - $1,000 (current credit balance) = $12,500. This means an additional $11,500 in allowance for uncollectible accounts is needed ($12,500 - $1,000 = $11,500). Finally, $10,000 is added to the current $1,000 credit balance to account for estimated uncollectible accounts, resulting in an adjusted balance of $11,000. Therefore, the correct answer is choice C, $10,880, which is the closest option to the adjusted balance of $11,000.

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