Question

Tanning Company analyzes its receivables to estimate bad debt expense. The accounts receivable balance is $320,000 and credit sales are $1,000,000. An aging of accounts receivable shows that approximately 8% of the outstanding receivables will be uncollectible. What adjusting entry will Tanning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,600 before adjustment?

Select the correct answer.

A Bad Debt Expense$22,500 Accounts Receivable$22,500
B Bad Debt Expense$23,000 Allowance for Doubtful Accounts$23,000
C Bad Debt Expense$24,000 Allowance for Doubtful Accounts$24,000
D Bad Debt Expense$22,000 Accounts Receivable$22,000

Answer 1

B Bad Debt Expense$23,000 Allowance for Doubtful Accounts$23,000

Step-by-step explanation:

As provided the closing balance of accounts receivables = $320,000

Expected uncollectibles = $320,000
`*` 8% = $25,600

Already the closing balance of allowance for doubtful accounts = $2,600

Entry to record is Bad Debts expense A/c Dr.

To Allowance for doubtful debts.

Since it is provided that out of total of $320,000 debtors only 8% will not be collectible.

That is only total of $25,600 is uncollectible, since the provision already exists amounting $2,600. The allowance shall be extended by $23,000

That is $25,600 - $2,600 = $23,000.