Question

At the beginning of the year, the credit balance in the Allowance for Doubtful Accounts for Healthcare Inc. was $40,000. The provision (expense) for doubtful accounts is computed based on a percentage of net credit sales. Total sales revenue for the year amounted to $15 million, of which one-third was on credit. Based on the latest available information, the provision needed for doubtful accounts is estimated to be 0.75% of net credit sales. During the year, uncollectible receivables amounting to $44,000 were written off. Compute the ending balance in the Allowance for Doubtful Accounts at December 31.

Answer 1

To calculate the ending balance in the Allowance for Doubtful Accounts, we add the provision for doubtful accounts to the beginning balance and then subtract any receivables written off. The provision is 0.75% of net credit sales, which comes to $37,500 for Healthcare Inc., and with receivables written off totaling $44,000, the ending balance is $33,500.

Step-by-step explanation:

To compute the ending balance in the Allowance for Doubtful Accounts for Healthcare Inc., we will follow these steps:

1. Calculate net credit sales: Total sales revenue is $15 million, with one-third on credit, so net credit sales equals $5 million.
2. Calculate the provision for doubtful accounts: 0.75% of net credit sales ($5 million) is $37,500.
3. Adjust the beginning balance by the provision and the write-offs: The beginning balance is $40,000, add $37,500 provision for doubtful accounts, and subtract $44,000 of receivables written off.

The ending balance in the Allowance for Doubtful Accounts would then be the beginning balance ($40,000) plus the provision ($37,500) minus the write-offs ($44,000), equalling $33,500.