Question

At the end of 2023, Garden Company had a balance in its Allowance for Uncollectible Accounts of $4,500 (credit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Garden Company's year-end adjustment to Allowance for Uncollectible Accounts on December 31, 2023 included a:

O Credit to Allowance for Uncollectible Accounts of $12,000.

O Credit to Allowance for Uncollectible Accounts of $7,500.

O Credit to Bad Debt Expense of $7,500.

O Debit to Bad Debt Expense of $12,000.

Answer 1

The year-end adjustment for Garden Company's Allowance for Uncollectible Accounts includes a credit to Allowance for Uncollectible Accounts of $7,500 and a corresponding debit to Bad Debt Expense for $7,500 to bring the allowance balance to the estimated total of $12,000.

Step-by-step explanation:

The Garden Company must adjust its Allowance for Uncollectible Accounts at the end of the year. Initially, there is a $4,500 credit balance in the allowance account. The company estimated a total of $12,000 for future uncollectibles using the percentage-of-receivables method. The adjustment doesn't add another $12,000 on top of the existing balance; rather, it adjusts the balance to reach the estimated total of $12,000.

To make the adjustment, the company needs to determine the difference between the existing allowance and the estimated amount of uncollectibles. The difference is calculated as $12,000 estimated balance minus the $4,500 existing balance, resulting in a needed adjustment of $7,500. The adjustment is made by crediting the Allowance for Uncollectible Accounts and debiting the Bad Debt Expense for $7,500.