Question

The following accounts were abstracted from Coronado Industries's unadjusted trial balance at December 31, 2020: Debit Credit Accounts receivable 900,000 Allowance for uncollectible accounts 8,000 Net credit sales $3,070,000 Coronado estimates that 4% of the gross accounts receivable will become uncollectible (this is the percentage of receivables method). The bad debt expense adjustment should be:

a.$28,000
b.$32,000
c.$36,000
d.$44,000

Answer 1

The bad debt expense adjustment for Coronado Industries should be calculated using the percentage of receivables method, with 4% of the gross accounts receivable deemed uncollectible. After adjusting for the existing Allowance for Uncollectible Accounts balance, the adjustment is determined to be $28,000.

Step-by-step explanation:

To calculate the bad debt expense adjustment for Coronado Industries, we will apply the percentage of receivables method which estimates that 4% of the gross accounts receivable will become uncollectible. From the information provided, Coronado has accounts receivable of $900,000. The estimated uncollectible amount would be 4% of the total accounts receivable, which calculates to $36,000 (0.04 × $900,000).

Next, we must consider the existing balance in the Allowance for Uncollectible Accounts, which is a credit of $8,000. The bad debt expense is the additional amount needed to bring the allowance account to the estimated uncollectible balance of $36,000.

To find the bad debt expense adjustment, we subtract the existing credit balance from the estimated uncollectible amount: $36,000 - $8,000 = $28,000. Therefore, the bad debt expense adjustment should be $28,000, which corresponds to option (a).