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29 August, 01:55

Foster Co. adjusted its allowance for uncollectible accounts at year-end. The general ledger balances for the accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively. Foster uses the percentage-of-receivables method to estimate its allowance for uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year-end?

A. $10,000 increase.

B. $10,000 decrease.

C. $50,000 decrease.

D. $50,000 increase.

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Answers (1)
  1. 29 August, 02:11
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    increase in allowance for uncollectible accounts = $10,000

    so correct option is A. $10,000 increase

    Explanation:

    given data

    accounts receivable = $1,000,000

    allowance account = $40,000

    uncollectible = 5 %

    to find out

    What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year end

    solution

    we get here first allowance for uncollectible accounts for year end that is

    allowance for uncollectible accounts = 1000000 * 5 %

    allowance for uncollectible accounts = 1000000 * 0.05

    allowance for uncollectible accounts = $50,000

    so here increase in allowance for uncollectible accounts at year end will be

    increase in allowance for uncollectible accounts = $50000 - $40000

    increase in allowance for uncollectible accounts = $10,000

    so correct option is A. $10,000 increase
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