Question

Wellington Corp. has outstanding accounts receivable totaling $6 million as of December 31 and sales on credit during the year of $30 million. There is also a debit balance of $24,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

a. $2,400,000.
b. $ 456,000.
c. $ 480,000.
d. $ 504,000.

Answer 1

The balance in the allowance for doubtful accounts after the year-end adjustment for Wellington Corp., considering an 8% estimated uncollectibility on accounts receivable and an existing $24,000 debit balance, will be (d) $504,000.

Step-by-step explanation:

To determine the adjustment for the allowance for doubtful accounts for Wellington Corp., we will calculate 8% of the outstanding accounts receivable. With accounts receivable totaling $6 million, the uncollectible portion is $6 million × 0.08, which equals $480,000. We also need to consider the existing debit balance in the allowance of $24,000. Therefore, we adjust the allowance to reflect the estimated uncollectibles plus the existing debit balance:

$480,000 (uncollectible estimate) + $24,000 (existing debit balance) = $504,000.

The correct balance in the allowance for doubtful accounts after the year-end adjustment will be $504,000.