Question

Brown Company's account balances at December 31, 2020 for Accounts Receivable and the related Allowance for Doubtful Accounts are $920,000 debit and $2,100 credit, respectively. From an aging of accounts receivable, it is estimated that $39,000 of the December 31 receivables will be uncollectible. The necessary adjusting entry would include a credit to the allowance account for

a. $39,000.
b. $41,100.
c. $36,900.
d. $2,100.

Answer 1

The necessary adjusting entry for Brown Company's Allowance for Doubtful Accounts would include a credit of $36,900 to adjust the balance to the estimated uncollectible amount of $39,000.

Step-by-step explanation:

To address the question regarding Brown Company's accounts, we're working with the fact that its Accounts Receivable balance is a debit of $920,000 and the Allowance for Doubtful Accounts has a credit balance of $2,100. On the basis of an aging analysis, the company has estimated that $39,000 of the December 31 receivables will likely be uncollectable.

When adjusting the allowance for doubtful accounts, the goal is to reflect the estimated realizable value of accounts receivable. Since the Allowance for Doubtful Accounts already has a credit balance of $2,100, and the estimate is that $39,000 will be uncollectible, we must calculate the difference needed to adjust the allowance to the new estimated uncollectible amount.

The adjustment will therefore include a credit to the Allowance for Doubtful Accounts by $36,900 ($39,000 - $2,100), which, when added to the existing credit balance, will equal the new estimate of $39,000 as the adjusted balance for potential uncollectible accounts.