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8 September, 12:18

A company has total accounts receivable of $500,000 for the year and it estimates that uncollectible accounts will be 3% of accounts receivable. If Allowance for Doubtful Accounts has a credit balance of $2,000 prior to adjustment, its balance after adjustment will be a credit of

a.$17,000.

b.$13,000.

c.$14,940.

d.$15,000.

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Answers (1)
  1. 8 September, 14:11
    0
    Option (d) is correct.

    Explanation:

    Given that,

    Total accounts receivable = $500,000

    Credit balance of Allowance for Doubtful Accounts = $2,000

    Estimates uncollectible accounts:

    = 3% of accounts receivable

    = 0.03 * $500,000

    = $15,000

    The closing balance after adjustment is the latest estimates:

    = 3% of accounts receivable

    = $15,000

    $15,000 includes both the opening credit balance of allowance for doubtful accounts worth of $2,000 and the current year adjustment of $13,000.
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