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16 July, 09:34

Data for the year ended December 31 are presented below: Sales (credit) $2,500,000 Sales returns and allowances 50,000 Accounts Receivable (December 31) 640,000 Allowance for Doubtful Accounts (Before adjustment at December 31) 20,000 Estimated amount of uncollected accounts based on aging analysis 45,000 Refer to AT&U Company. If the company estimates its bad debt to be 2% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

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  1. 16 July, 11:56
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    Allowance for Doubtful Accounts 69,000

    Explanation:

    If the company estimates its bad debt to be 2% of net credit sales:

    sales 2,500,000

    return and allowance (50,000)

    net sales 2,450,000

    Then, we calculate 2% of this amount:

    2,450,000 x 0.02 = 49,000

    As the uncollectible amounts are related to sales rather than account receivable we adjust for the full value giving an ending value of:

    beginning 20,000 + adjustment 49,000 = 69,000
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