Warner Company's year end unadjusted trial balance shows accounts recievable of $99,000 . Allowance for doubtful accounts of $600 (credit). And sales of $280,000. Uncollectables are estimated to be 1.5% of account receivable.

1 Prepare the December 31 year-end adjusting entries for uncollectables.
2. What amount would have been used in the year-end adjusting entries if the allowance account had a year-end unadjusted debit balance of $300.:confused:
Please help me

AR = 99,000
Uncollectable = 1.5% of AR

Total est uncollectable = 99,000 * 1.5% = 1,485.

You need to make the allowance account = this amount.

1. Cr Allowance by $855 (1485-600)
Db Bad Debt Expense by 855

2. Cr Allowance by $1185 (1485-300)
Db Bad Debt Expense 1185

Does this make sense now?

moonkhan,

Sorry I read #2 wrong, I thought it said the Allowance account had a Credit balance of $300. Because it is a debt balance and you need the allowance account to equal a 1485 credit balance you need to credit AR Allowance by 1485+300 = 1785 and offset to Bad debt expense.

In my defense this is a trick question because the Allowance Account would never have a debt balance in the first place it is a contra-asset account. For example AR (Debt bal) net of allowance (credit bal) = net AR.

This is a typical textbook problem which is not logical only trying to test your knowledge. Guess I have been in the real accounting world too long for these tricky textbook questions. In the real world allowance accounts should never have a debt balance.

Thanks a mil

By the way do you happen to know the difference between Percent of accounts receivable method and perecent of credit sales method?

Always got confused with that!

Wecker Company's year-end unadjusted trial balance shows accounts receivable of $89,000, allowance for doubtful accounts of $500 (credit), and sales of $270,000. Uncollectible are setimated to be 1.5% of accounts receivable. What amount would have been used in the year-end adjusting entry if the allowance account had a year-end unadjusted debit balance of 200?

Please help me

I'm confused regarding on hoe to get the rate, if the given is only the accounts receivable and the allowance for doubtful accounts. This is for the percent of accounts receivable method.

Please help me

I'm confused regarding on hoe to get the rate, if the given is only the accounts receivable and the allowance for doubtful accounts. This is for the percent of accounts receivable method.

a/r x % = allowance for doubtful accounts ?
sales x % = doubtful accounts expense?