Question

Allegheny Company ended 2015 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During 2016, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its 2016 income statement

Answer 1

Allegheny should report as $2,200 as Uncollectible Accounts Expense on its 2016 income statement.

Step-by-step explanation:

Allegheny determines its bad debt expense by aging its receivables.

The write-off during 2016 would have this effect:

Debit Allowance for doubtful accounts $1,500

Credit Accounts receivable $1,500

(To record write-off during 2016)

The balance in the allowance for doubtful accounts would be $900 - $1,500 = $600 Debit

To reinstate the Allowance account to the estimated amount of $1,600, we need to add back the debit balance to arrive at $1,600 + $600 = $2,200.

The net realizable value of the Accounts receivable becomes: $23,000 - $1,500 - $1,600 = $19,900