Question

As of January 1, 2021, Farley Co. had a credit balance of $524,000 in its allowance for uncollectible accounts. Based on experience, 3% of Farley's credit sales have been uncollectible. During 2021, Farley wrote off $634,000 of accounts receivable. Credit sales for 2021 were $18,000,000.

In its December 31, 2021, balance sheet, what amount should Farley report as allowance for uncollectible accounts?

a) $430,000. b) $540,000. c) $650,000. d) $1,064,000

Answer 1

$430,000

Step-by-step explanation:

The computation of Allowance for doubtful accounts is shown below:-

Allowance for doubtful accounts on 31 Dec 2021 = Allowance for doubtful accounts as on 1 Jan 2021 - Written off uncollectible + Bad debt expenses

= $524,000 - $634,000 + (3% × $18,000,000)

= $524,000 - $634,000 + $540,000

= $1,064,000 - $634,000

= $430,000

Therefore for computing the Allowance for doubtful accounts on 31 Dec 2021 we simply applied the above formula.