Question

Using the allowance method, the uncollectible accounts for the year are estimated to be $50,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?

A) $9,000

B) $41,000

C) $50,000

D) $59,000

Answer 1

The balance in Allowance for Doubtful Accounts after adjustment is (C) $50,000

Computation:
Balance after adjustment: Existing balance + further amount of bad debt expense estimated => $9,000 + $(50,000 - $9,000) = $50,000

Explanation: Since the allowance for doubtful accounts has a credit balance of $9,000, assuming such balance is leftover after the transfer of actual bad debt of previous year to accounts receivable a/c, it implies that the company has excessly provided for doubtful debt during the previous year and hence in order to bring the overall allowance for doubtful debts to anticipated level of $50,000, the company may credit further amount of $41,000 during current year