Question

The following accounts were abstracted from Roxy Co.'s unadjusted trial balance at December 31:

Debit Credit
Accounts receivable $1,000,000
Allowance for uncollectible accounts 8,000
Net credit sales $3,000,000
Roxy estimates that 3% of the gross accounts receivable will become uncollectible. After adjustment at December 31, the allowance for uncollectible accounts should have a credit balance of______

Answer 1

The allowance for uncollectible accounts should have a credit balance of $30,000 after adjustment at December 31.

Step-by-step explanation:

The allowance for uncollectible accounts should have a credit balance of $30,000 after adjustment at December 31.

To calculate the adjustment, you need to determine 3% of the gross accounts receivable. In this case, 3% of $1,000,000 is $30,000. The allowance for uncollectible accounts is a contra-asset account, which means it is subtracted from accounts receivable. Since the existing balance in the allowance account is $8,000, you need to increase it by $30,000 - $8,000 = $22,000 to reach a credit balance of $30,000.