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

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Answer #1

Answer:

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.

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