Question

# On December 31, 2019 before adjusting entries, Accounts Receivable for Atlanta Company had a debit balance...

On December 31, 2019 before adjusting entries, Accounts Receivable for Atlanta Company had a debit balance of \$600,000, and the Allowance for Doubtful Accounts had a credit balance of \$18,000. Credit sales for the year were \$4,800,000.

If credit losses are estimated at 1% of credit sales:

Select one:

A. The balance of the Allowance for Doubtful Accounts will be \$30,000 after adjustment

B. The balance of the Allowance for Doubtful Accounts will be \$66,000 after adjustment

C. The balance of the Allowance for Doubtful Accounts will be \$48,000 after adjustment

D. Bad Debts Expense for the year will be \$66,000

Correct option is b.

The balance of allowance for doubtful Accounts will be \$66000 after adjustment.

Explanation:

Credit sale = \$4800000

Bad debts expense = \$4800000 x 1% = \$48000

Journal entry:

Bad debts expense Account ..... Debit \$48000

Allowance for Doubtful Account .... Credit \$48000

Note:

Credit balance in Allowance for Doubtful Account = \$18000

Credit amount in Allowance for Doubtful Account due to bad debts = \$48000

Total balance in Allowance for Doubtful Account = \$18000 + \$48000 = \$66000.