Question

Wellington Corp. has outstanding accounts receivable totaling $6 million as of December 31 and sales on credit during the year of $30 million. There is also a debit balance of $24,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense

Answer 1

Balance in allowance = $480,000

Explanation :

As per the data given in the question,

Receivable totaling = $6 million

Credit = $30 million

Now the uncollectible amount is

= $6,000,000 × 8%

= $480,000

After adjustment, the amount is

= $480,000 + $24,000

= $504,000

Now the Adjusting entry is:

Ba debts expense $504,000

To allowance for doubtful debts $504,000

(Being the bad debt expense is recorded)