Question

In 2016, Yale Company had credit sales of $1,050,000 and granted sales discounts of $25,000. On January 1, 2016, Allowance for Doubtful Accounts had a credit balance of $26,400. During 2016, $43,000 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2016?

Answer 1

To find the adjusted balance of the Allowance for Doubtful Accounts, net credit sales are calculated, the percentage of expected uncollectible accounts is applied, and then the beginning balance is adjusted for write-offs and the new estimate.

Step-by-step explanation:

To calculate the adjusted balance of the Allowance for Doubtful Accounts at the end of the year, we need to follow a series of steps. Initially, we start with the beginning balance and then adjust it for the effects of write-offs and the estimate of future uncollectible based on the company's experience.

1. Determine the net credit sales by subtracting the sales discounts from the credit sales: $1,050,000 - $25,000 = $1,025,000.
2. Calculate the estimated uncollectible: 3% of $1,025,000 = $30,750.
3. Adjust the beginning balance of the allowance account by subtracting the write-offs and adding the estimated uncollectible: $26,400 - $43,000 + $30,750 = $14,150.

Therefore, the adjusted balance of the Allowance for Doubtful Accounts on December 31, 2016, should be $14,150.