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25 August, 08:48

For 2018, Rahal's Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2017. During 2018, Rahal's credit sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts receivable were written off.

Rahal's final balance in its allowance for uncollectible accounts at December 31, 2018, is:

Multiple Choice

$4,040.

$4,100.

$3,800.

$4,340.

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Answers (1)
  1. 25 August, 11:50
    0
    The correct option is C which is $3,800

    Explanation:

    The final balance of Rahul in the allowance for uncollectible accounts on December 31, 2018 is computed as:

    Allowance for uncollectible accounts on December 31, 2018 = Allowance for uncollectible accounts (beginning balance) - Accounts receivable written off + Bad debt expense

    = $2,100 - $2,340 + $4,040

    = - $240 + $4,040

    = $3,800

    Working Note:

    Bad debt expense = Credit Sales * 1%

    = $404,000 * 1%

    = $4,040
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