Question

Calistoga Produce estimates bad debt expense at 0.50% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $487,000 and $1,610 respectively, at December 31, 2015. During 2016, Calistoga's credit sales and collections were $318,000 and $312,000, respectively, and $1,750 in accounts receivable were written off.

Calistoga's adjusted allowance for uncollectible accounts at December 31, 2016, is:

(A) $2,335.
(B) $1,355.
(C) $2,100.
(D) $1,450.

Answer 1

Answer:

(D) $ 1,450

Explanation:

The ending balance in allowance for uncollectible accounts is calculated by the following equation.

Opening Balance + Allowance for the year - Receivables written off = Ending Balance

$ 1,610 + $ 1,590 (0.5 % of sales on credit, $ 318,000 *0.5%) - $ 1,750 ( Receivables written off) = Adjusted allowance for uncollectible accounts $ 1,450

The amounts collected are not relevant in  calculating the ending balalnce