Question

Morrow incorporated uses the percentage of credit sales method of estimating doubtful accounts. the allowance for doubtful accounts has an unadjusted credit balance of $6,300 and the company had $320,000 of net credit sales during the period. morrow has experienced bad debt losses of 5% of credit sales in prior periods. after making the adjusting entry for estimated bad debts, what is the ending balance in the allowance for doubtful accounts account?

Answer 1

The ending balance in the allowance for doubtful accounts account is $16,000.

Step-by-step explanation:

To determine the ending balance in the allowance for doubtful accounts account, we need to calculate the estimated bad debts using the percentage of credit sales method. The company had $320,000 of net credit sales during the period, and the company has experienced bad debt losses of 5% of credit sales in prior periods. Therefore, the estimated bad debts can be calculated as 5% of $320,000, which is $16,000.

To adjust the allowance for doubtful accounts, we need to subtract the existing balance in the account ($6,300) from the estimated bad debts ($16,000), resulting in an adjusting entry of $9,700 (16,000 - 6,300).

Finally, to find the ending balance in the allowance for doubtful accounts account, we need to add the adjusting entry ($9,700) to the unadjusted credit balance ($6,300). The ending balance in the allowance for doubtful accounts account is $16,000 (6,300 + 9,700).