Question

"A trial balance before adjustments included the following:

Debit Credit
Sales $1,700,000
Sales returns and allowance $56,000
Accounts receivable $172,000
Allowance for doubtful accounts $3,040
If the estimate of uncollectible accounts is made by taking 5% of gross accounts receivables, the amount of the adjustment is:

a) $8,600.
b) $8,200.
c) $5,420.
d) $8,940."

Answer 1

This amount does not match any provided option, indicating a possible error in the question or given options.

Step-by-step explanation:

The student's question is about calculating the adjustment for the Allowance for Doubtful Accounts using the percentage of gross accounts receivable method. Based on the provided information, we need to take 5% of the gross accounts receivable to estimate the uncollectible accounts. The gross accounts receivable is $172,000, so the calculation will be:

0.05 × $172,000 = $8,600.

However, since there is already an existing Allowance for Doubtful Accounts balance of $3,040, we must subtract this amount from the calculated estimate to find the necessary adjustment. The adjustment would be:

$8,600 - $3,040 = $5,560.

It looks like there is a discrepancy between the result we obtained ($5,560) and the options provided (a) $8,600, b) $8,200, c) $5,420, d) $8,940). As such, none of the options in the question match the correct adjustment calculated. There could be a typo or misunderstanding in the question provided. If the question meant to ask for the estimate before considering the existing allowance, the answer would be (a) $8,600. However, if the question meant to ask for the adjustment needed, then there seems to be an error as the correct adjustment is not listed as an option.