McGlone Corporation had a 1/1/20 balance in the Allowance for Doubtful Accounts of $40,000. During 2020, it wrote off $28,000 of accounts and collected $8,400 on accounts previously written off. The balance in Accounts Receivable was $800,000 at 1/1 and $960,000 at 12/31. At 12/31/20, McGlone estimates that 5% of accounts receivable will prove to be uncollectible. What should McGlone report as its Allowance for Doubtful Accounts at 12/31/20?

McGlone should report $48,000 (5% x $960,000) as its Allowance for Doubtful Accounts at 12/31/20 by recognizing bad debt expense of $27,600.

Debit Bad debt expense                                     $27,600

Credit  Allowance for Doubtful Accounts          $27,600

(To recognize bad debt expense for the year)

Explanation:

The following required journals are necessary to reconcile the balance in Allowance for Doubtful Accounts:

Debit Allowance for Doubtful Accounts           $28,000

Credit Accounts Receivable                              $28,000

(To recognize write-off on accounts)

Debit Accounts Receivable                                 $8,400

Credit Allowance for Doubtful Accounts            $8,400

(Recognition of accounts receivable previously written off)

Debit Cash                                                            $8,400

Credit Accounts Receivable                                $8,400

(Recognition of cash collection on accounts receivable previously written off)

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