Question

Jack Company provides for bad debt expense at the rate of 2% of credit sales. The following data are available for 2015:

Allowance for doubtful accounts, 1/1/15 (Cr.)
$ 12,000
Accounts written off as uncollectible during 2015
9,000
Credit sales in 2015
1,200,000

The Allowance for Doubtful Accounts balance at December 31, 2015, should be
A) $3,000.
B) $21,000.
C) $24,000.
D) $27,000.

Answer 1

The Allowance for Doubtful Accounts balance at December 31, 2015, for Jack Company should be $27,000, after considering the beginning balance, accounts written off, and the provision for bad debts.

Step-by-step explanation:

To calculate the ending balance of the Allowance for Doubtful Accounts for Jack Company, we must adjust the beginning balance for any accounts written off and add the provision for bad debts made during the year. The provision is based on 2% of the credit sales.

The adjusted starting balance after accounts written off is $12,000 - $9,000 = $3,000.

Then, adding the provision for bad debts, we have $3,000 + $24,000 = $27,000.

Therefore, the correct Allowance for Doubtful Accounts balance at December 31, 2015, should be $27,000.