Question

BC, Inc.'s unadjusted trial balance included accounts receivable $80,000 debit; allowance for doubtful accounts $750 credit; and credit sales $400,000 credit. ABC uses the aging-of-receivables method and estimates that $80,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report _. (check all that apply.)

allowance for doubtful accounts of $8,000 on the balance sheet
&
bad debt expense of $7,250 on the income statement

Answer 1

Allowance for Doubtful accounts of $8000 and Bad debt expense of $7,250

Step-by-step explanation:

BC, Inc.'s unadjusted trial balance included

accounts receivable $80,000 debit;

allowance for doubtful accounts $750 credit;

and credit sales $400,000 credit.

ABC uses the aging-of-receivables method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report $8000. allowance for doubtful accounts on the balance sheet & bad debt expense of $7,250 on the income statement.

Using the aging-of-receivables method to estimate bad debt implies that we must consider the existing balance in the allowance for uncollectibe account, unlike the percentage of sales method

Therefore the entry will be a Bad debt expense of 8000 less 750 which is 7250 while the entire 8000 will be deducted from receivables in the Balance sheet.

Answer 2

Answer: Allowance for doubtful accounts of $80,750 on the balance sheet & bad debt expense of $80,000 on the income statement

Explanation: From the information provided in the question, BC Inc. already had a credit balance of $750 in the allowance for doubtful accounts (balance sheet). Since the company uses the allowance method and has deemed $80,000 as uncollectible, that amount would serve as a provision for bad debt expense during the year. As a result, the adjusted trial balance would have bad debt expense of $80,000 (being additional provision) and allowance for doubtful accounts would increase by the same $80,000 (totaling $80,750).