Question

At the end of 2021, Murray State Lenders had a balance in its Allowance for Uncollectible Accounts of $4,500 (debit) before any adjustment. The company estimated its future uncollectible accounts to be $12,000 using the percentage-of-receivables method. Murray State's adjustment on December 31, 2021, to record its estimated uncollectible accounts included a:

Answer 1

Murray State's adjustment is as follows:

Dr Bad debts expense $16500

Cr Allowance for uncollectible accounts $16500

Step-by-step explanation:

The estimate of $12000 as allowance for uncollectible accounts implies that the balance in the account at the end of the year should be $12000,hence there has to be a credit entry of $16500($4500+$12000) in allowance for uncollectible accounts so as to have a balance of $12000.

The double entries would look like the below:

Dr Bad debts expense $16500

Cr Allowance for uncollectible accounts $16500

The debit entry in the bad debts expense account is on the premise that expense increased while the posting in allowance for uncollectible accounts show a reduction in asset,hence it is credited