Final answer:
The adjusting entry for Chen Company would include a credit to the Allowance for Doubtful Accounts of $15,600, after accounting for the estimated uncollectible accounts from sales and the existing allowance balance.
Step-by-step explanation:
The main answer to how the adjusting entry would credit the Allowance for Doubtful Accounts in Chen Company's case involves simple calculation. First, 1% of the company's sales, which are $1,650,000, is calculated to estimate the uncollectible accounts. So the amount is $1,650,000 * 0.01 = $16,500. Since the existing balance in the Allowance for Doubtful Accounts is a credit of $900, we need to adjust it to reflect the new estimate.The adjusting entry will therefore include a credit to the Allowance for Doubtful Accounts by the difference between the estimated uncollectible accounts and the existing allowance balance. The calculation is $16,500 (estimated uncollectible) - $900 (existing credit balance) = $15,600. Hence, the adjusting entry would include a credit to the Allowance for Doubtful Accounts of $15,600.In conclusion, the adjusting entry aims to match expenses with revenues in the period they are incurred, adhering to the accrual basis of accounting, and ensuring that the Allowance for Doubtful Accounts accurately reflects potential future losses from uncollectible accounts.