Question

Wellington has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $14 million. There is also a credit balance of $24,000 in the allowance for doubtful accounts. If the company estimates that 1% of its sales will be uncollectible, what will be the ending balance in the allowance account after the adjusting entry is made? a. 65,000 b. 140,000 c. 116,000 d. 14,000 e. 164,000 Clear my choice

Answer 1

Step-by-step explanation:

The answer must be the credit balance of the allowance for doubtful accounts after the adjusting entry is made.

Let's calculate the amount of bad debt expense:

Estimated uncollectible accounts = 1% * $14 million = $140,000

Unadjusted balance of allowance for doubtful accounts = $24,000

Bad debt expense = $140,000 - $24,000 = $116,000

Therefore, the ending balance in the allowance account after the adjusting entry is made will be $116,000. So the answer is (c).