Concord Corporation has outstanding accounts receivable totaling $1.29 million as of December 31 and sales on credit during the year of $6.30 million. There is also a debit balance of $6100 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

a. $25678.
b. $25800.
c. $19700.
d. $31900.

Concord Corporation has outstanding accounts receivable totaling $1.29 million as of December 31 and sales on credit during the year of $6.30 million. There is also a debit balance of $6100 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense will be  $25800 - option B.

Explanation:

Estimated uncollectible = 2% of account receivables

Allowance account’s adjusted balance must be the same as estimated uncollectible balance.

Therefore, the adjusted Allowance for Doubtful Account = $1.29 millions x 2%

= $1.29*0.02

The adjusted Allowance for Doubtful Account  = $ 0.0258 millions or $ 25,800.

Therefore, the correct answer is $ 25,800 - option B.

Balance of uncollectible accounts    - $ 25,800

Explanation:

Computation of Bad debts expense

The allowance of uncollectible accounts are calculated as a percentage of outstanding receivables.

Accounts receivable  balance                                                $ 1,290,000

Percentage estimated to be uncollectible                                       2 %

Estimated balance of uncollectible accounts                     $     25,800

The balance in the uncollectible account shall be 2 % of receivable i.e $ 25,800.

The adjustment entry shall be debited at $ 31,900, being the balance amount plus the debit balance in the allowance account prior to adjustment.

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