Question

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $54,000 and $2,400, respectively. During Year 2, Allegheny wrote off $4,200 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $4,000. What will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement

Answer 1

Uncollectible Accounts Expense for year 2: 5,800

Step-by-step explanation:

Allowance

DEBIT CREDIT

BEG 2,400

Write-offf 4,200

Adjusmtent XXX

Ending 4,000

The aging method determined the ending balance we must solve for the adjustment made against uncollectible account expense:

beginning - write-off + adjustment = ending

2,400 - 4,200 + X = 4,000

X = 4,000 + 4,200 - 2,400 = 5,800

Answer 2

Allegheny will report $5,800 as Uncollectible Accounts Expense on its Year 2 income statement.

Step-by-step explanation:

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Allowance for Doubtful Accounts is estimated as $4,000 for year 2

Before Adjustment year 2

Allowance for Doubtful Accounts Balance = $2,400 credit - $4,200 = $1,800 debit

Account receivable balance = $54,000 - $4,200 = $49,800

As Allowance for Doubtful Accounts already have debit balance of $1,800, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $4,000 at the year end.

Adjustment Value = $4,000 + $1,800 = $5,800