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21 April, 07:04

At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments. An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected. The balance of Allowance for Uncollectible Accounts after adjustment will be:

A. $1,000

B. $16,000

C. $14,000

D. $15,000

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Answers (2)
  1. 21 April, 08:36
    0
    B) $16,000

    Explanation:

    Allowance for uncollectible accounts is a contra asset account that has a credit balance. It reduces accounts receivable by the amount of estimated bad debts.

    In this case, since the account has a debit balance, and the estimated bad debts are $15,000 ( = $300,000 x 5%), it must be credited by $15,000 + $1,000 = $16,000

    The journal entry should be:

    December 31, adjustments for bad debt expense.

    Dr Bad debts expense 16,000

    Cr Allowance for uncollectible accounts 16,000
  2. 21 April, 09:00
    0
    C. $14,000

    Explanation:

    At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments.

    An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected, which is 5% x $300,000 = $15,000

    The balance of Allowance for Uncollectible Accounts after adjustment will be: $1000 (debit) + $15,000 (credit) = $14,000 credit
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