Question

On December 31, Year 3, Alpha Company had an ending balance of $200,000 in its accounts receivable account and an unadjusted (current) balance in its allowance for doubtful accounts account of $300. Alpha estimates uncollectible accounts expense to be 1% of receivables. Based on this information, the amount of uncollectible accounts expense shown on the Year 3 income statement is

Answer 1

Based on this information, the amount of uncollectible accounts expense shown on the Year 3 income statement is

$1700

Step-by-step explanation:

Account receivable 200000

Allowance for doubful 300

Uncollectible accounts 1%

Allownace for doubtfull 2000

Expense for allowance 1700

Answer 2

The answer is: $1700

Step-by-step explanation:

Businesses which sell on credit anticipate to make losses when some of their debtors are unable to pay their debts due to insolvency (when businesses are unable to meet their payment obligations as they fall due owing to lack of liquidity, bankruptcy among other reasons). An adjustment to the accounts receivable amount is done so as to reflect these estimated losses in revenue. The allowance for doubtful debts is estimated as a percentage of accounts receivable deemed as irrecoverable.

The current balance of the doubtful debt account is $300. The total amount of accounts receivable account is $200, 000. 1% of $200, 000 is deemed irrecoverable therefore an adjustment of (1% * $200,000 = $2,000) less $300, is the amount to be recognised in the income statement of Year 3. Therefore $1, 700 would be recognised in the income statement.