Final answer:
To reconcile the allowance for doubtful accounts with a debit balance of $176 to the desired credit balance reflecting $656 in uncollectible accounts, a credit of $832 is needed. This adjusts for the existing debit balance and establishes the necessary allowance, making option (d) $832 the correct choice.
Step-by-step explanation:
The subject of this question involves the allowance method of accounting for uncollectible accounts receivable. When a company estimates that some of its accounts receivable will not be collected, it uses this approach to reflect potential losses in its financial statements. According to the details provided, the allowance for doubtful accounts has a debit balance of $176, but analysis shows that $656 of accounts receivable are uncollectible. To adjust the allowance to the correct balance, the entry would include a credit to the allowance for doubtful accounts.
To find out the amount of the credit, we need to offset the current debit balance and then establish a credit balance equal to the estimated uncollectibles. The allowance account, after adjustment, should have a credit balance of $656:
- Current Debit balance: $176 (which needs to be erased)
- Desired Credit balance: $656 (which reflects the estimated uncollectible amount)
Calculating the needed credit amount:
Credit needed to offset Debit balance = $176
Additional Credit needed to reach Desired balance = $656
Total Credit needed = $176 (to offset) + $656 (to reach desired balance)
Total Credit needed = $832
Therefore, the adjusting entry at the end of the year will include a credit to allowance for doubtful accounts in the amount of $832, which is option (d).