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    Calculation of the Allowance for Doubtful Accounts

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    15. ABC company uses the estimate of sales method of accounting for uncollectible accounts. ABC estimates that 3% of all credit sales will be uncollectible. On January 1, 2005, the Allowance for Doubtful Accounts had a credit balance of $2,400. During 2005, ABC wrote-off accounts receivable totaling $1,800 and made credit sales of $100,000. After the adjusting entry, the December 31, 2005, balance in the Uncollectible Accounts Expense would be ________. (Points: 4)
    $1,200
    $3,000
    $3,600
    $7,200

    16. Allowance for Doubtful Accounts has a credit balance of $1,500 at the end of the year (before adjustment), and an analysis of customers' accounts indicates doubtful accounts of $17,900. Which of the following entries records the proper provision for doubtful accounts? (Points: 4)
    debit Allowance for Doubtful Accounts, $16,400; credit Uncollectible Accounts Expense, $16,400
    debit Allowance for Doubtful Accounts, $19,400; credit Uncollectible Accounts Expense, $19,400
    debit Uncollectible Accounts Expense, $19,400; credit Allowance for Doubtful Accounts, $19,400
    debit Uncollectible Accounts Expense, $16,400; credit Allowance for Doubtful Accounts, $16,400

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    https://brainmass.com/business/allowance-method/calculation-of-the-allowance-for-doubtful-accounts-164804

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    15. The problem tells us that the allowance at year end should equal 3% of credit sales. 100,000 x 3% = $3000. As a contra account to accounts receivable, the normal balance will be a credit.
    Balance at 1-1-05 $(2,400)
    2005 write-offs 1,800
    Adjusting entry (3,000)
    Balance at 12-31-05 (3,600)

    The point to understand is ...

    Solution Summary

    The solution provides the calculations for the two problems but also explains the difference in the two methods of computing an allowance amount. Both methods are acceptable, but quite different in their approach.

    $2.19

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