Question

A company has $102,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) $920 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

Answer 1

$7,040 credit

Step-by-step explanation:

Based on the scenario being described, the journal entry would be a $7,040 credit. This can be calculated by accounting for the desired balance in allowance account which would be the outstanding account receivable times the uncollectable percentage in decimal form (0.06) like so...

$102,000 × 0.06 =$6,120 credit

Finally, 920 is debited to that amount which sums it up to $7,040 credit ($6,120 + 920 )