Rahal's adjusted allowance for uncollectible accounts at December 31, 2013, is:

Question

Quizplus · Accepted Answer

To find the adjusted allowance for uncollectible accounts, we need to use the percentage of credit sales method. The percentage of credit sales method estimates uncollectible accounts based on the historical percentage of credit sales that have proven to be uncollectible. 
In this case, Rahal had $390,000 of credit sales and an unadjusted allowance for uncollectible accounts of $3,000. If Rahal estimates that 2% of credit sales will be uncollectible, the amount of the adjusted allowance can be calculated as follows: 
$390,000 x 2% = $7,800 
$7,800 - $3,000 (unadjusted allowance) = $4,800 
However, the problem states that Rahal wants to maintain a minimum balance in the allowance account of $500. Therefore, the adjusted allowance will be the lesser of $4,800 or $500 plus the balance of the unadjusted allowance: 
$500 + $3,300 (balance of unadjusted allowance) = $3,800 
Therefore, the adjusted allowance for uncollectible accounts is $3,800, which is choice C.

Rahal's Adjusted Allowance for Uncollectible Accounts at December 31, 2013