Question

Warner Company’s year-end unadjusted trial balance shows accounts receivable of $104,000, allowance for doubtful accounts of$650 (credit), and sales of $330,000. Uncollectibles are estimated to be 1.50% of accounts receivable.

a. Prepare the December 31 year-end adjusting entry for uncollectibles. Record the estimate of uncollectibles.

Answer 1

The December 31 adjusting entry for uncollectibles at Warner Company involves debiting Bad Debts Expense for $910 and crediting Allowance for Doubtful Accounts for $910.

Step-by-step explanation:

The adjusting entry on December 31 for uncollectibles for Warner Company involves estimating the allowance for doubtful accounts based on the given percentage of uncollectible accounts receivable. To calculate the adjustment amount, we apply the 1.50% rate to the unadjusted accounts receivable balance of $104,000, which amounts to $1,560 (0.015 x $104,000). We then compare this amount with the existing credit balance in the allowance for doubtful accounts ($650) and adjust it accordingly.

To record the adjustment entry, we need to debit the expense account (Bad Debts Expense) for the increase needed in the allowance and credit the Allowance for Doubtful Accounts to reflect the expected uncollectible accounts. The entry would be:

• Debit Bad Debts Expense: $910
• Credit Allowance for Doubtful Accounts: $910

The amount of $910 is found by subtracting the current credit balance ($650) from the required balance ($1,560).

December 31 Adjusting Entry:

1. Bad Debts Expense 1,560
2. Allowance for Doubtful Accounts 650

Net Adjustment: $910 (Credit)