Question

Q 8.25: Both Fowler Landscaping and Stanley Cleaning Services have estimated their uncollectible accounts for 2018 to be $3,500. In addition, both companies use the allowance method for uncollectible accounts. If Stanley Cleaning Services has to record a larger adjusting entry for their Allowance for Doubtful Accounts account at the end of 2017, what can you assume about the balance of the Allowance for Doubtful Accounts account for each company

Answer 1

If both companies have similar bad debt expenses, but the adjustment entries vary, that means that the ending balances (for 2017) of the allowance for doubtful accounts was different.

Step-by-step explanation:

For example, the ending balances (2017) for the allowance for doubtful accounts for both firms were:

Fowler Landscaping: $500 debit balance

Stanley Cleaning Services: $500 credit balance

the adjustment entry for Fowler Landscaping:

December 31, adjustment entry for bad debt expense

Dr Bad debt expense 4,000

Cr Allowance for doubtful accounts 4,000

the adjustment entry for Stanley Cleaning Services:

December 31, adjustment entry for bad debt expense

Dr Bad debt expense 3,000

Cr Allowance for doubtful accounts 3,000