Question

During 2017, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2017, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2017, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2017?

Answer 1

$32,000

Step-by-step explanation:

Allowance for doubtful accounts is a reduction in the total amount of accounts receivable given in the company´s balance sheet. Such an allowance is actually and estimate from the management of the accounts receivables that it doesn´t expect to receive.

Ecuation:

Adjustment = -$18,000 + $30,000 + ($200,000 * 0.1)

Adjustment = -$18,000 + $30,000 + $20,000

Adjustment = $32,000

The estimation of the write off from the previous year must be discounted, the added the write off registered during the year plus the estimate at the end of the period.