Final answer:
The year-end adjusting entry will include a debit to allowance for doubtful accounts.
Step-by-step explanation:
The year-end adjusting entry will include a debit to allowance for doubtful accounts.
To determine the amount of the year-end adjusting entry, we need to calculate the estimated uncollectible amount based on the $100,000 balance in accounts receivable. Since Candle Stix estimates that 5% of the balance is uncollectible, we can multiply $100,000 by 5% to find the estimated uncollectible amount of $5,000.
However, before the year-end adjusting entry, there is already a $1,000 credit balance in allowance for doubtful accounts. To bring the balance in allowance for doubtful accounts to match the estimated uncollectible amount, we need to increase it by $5,000 - $1,000 = $4,000. This increase is done through a debit to allowance for doubtful accounts in the year-end adjusting entry.