Question

Foster Co. adjusted its allowance for uncollectible accounts at year-end. The general ledger balances for the accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively. Foster uses the percentage-of-receivables method to estimate its allowance for uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year-end?

A. $10,000 increase.
B. $10,000 decrease.
C. $50,000 decrease.
D. $50,000 increase.

Answer 1

increase in allowance for uncollectible accounts = $10,000

so correct option is A. $10,000 increase

Step-by-step explanation:

given data

accounts receivable = $1,000,000

allowance account = $40,000

uncollectible = 5 %

to find out

What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year end

solution

we get here first allowance for uncollectible accounts for year end that is

allowance for uncollectible accounts = 1000000 × 5 %

allowance for uncollectible accounts = 1000000 × 0.05

allowance for uncollectible accounts = $50,000

so here increase in allowance for uncollectible accounts at year end will be

increase in allowance for uncollectible accounts =$50000 - $40000

increase in allowance for uncollectible accounts = $10,000

so correct option is A. $10,000 increase