Question

Determine the amount to be added to Allowance for Doubtful Accounts in each of the following cases and indicate the ending balance in each case.

a. Credit balance of $300 in Allowance for Doubtful Accounts just prior to adjustment. Analysis of accounts receivable indicates uncollectible receivables of $8,500.

Amount added	$
Ending balance	$

b. Credit balance of $500 in Allowance for Doubtful Accounts just prior to adjustment. Uncollectible receivables are estimated at 2% of credit sales, which totaled $1,000,000 for the year.

Amount

Answer 1

Solution:
a.	Amount added	$8,200
	Ending Balance	$8,500
Working Notes:
	Beginning Balance of Allowance for Doubtful Accounts is $300 Credit
	At the end of period analysis of Accounts receivable indicates $8,500 is uncollectible , Means $8,200 additional towards allowance for doubtful accounts to make total allowance of $8,500 for uncollectible accounts receivable of $8,500 must be maintain
	Amount added	$8,200
	[Ending balance required -Beginning credit balance]
	[$8,500-$300 = $8,200]
	Ending Balance	$8,500
	[At end total uncollectible balance of accounts receivable]
b.	Amount added	$20,000
	Ending Balance	$20,500
Working Notes:
	In this case Credit balance of $500 was already at beginning for sales of past years AND additional Allowance is created for current year credit sales uncollectible estimates ..
	Means, Beginning balance will continue and additional new allowance is created for current years sales' uncollectible
	Amount added	$20,000
	[current year sales x % of uncollectible]
	[$1,000,000 x 2% = $20,000]
	Ending Balance	$20,500
	[Beginning balance + Additional uncollectible added]
	$500 +$20,000 =$20,500]
Please feel free to ask if anything about above solution in comment section of the question.