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30 August, 22:07

At the end of the year, Brinkley Incorporated's balance of Allowance for Uncollectible Accounts is $3,500 (credit) before adjustment. The company estimates future uncollectible accounts to be 5% of credit sales for the year. Credit sales for the year total $130,000. What is the adjustment Brinkley would record for Allowance for Uncollectible Accounts using the percentage-of-credit-sales method?

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  1. 31 August, 00:37
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    The adjustment Brinkley records for Allowance for Uncollectible Accounts using the percentage-of-credit-sales method:

    Debit Bad debts expense $6,500

    Credit Allowance for Uncollectible Accounts $6,500

    Explanation:

    Brinkley Incorporated' uses the percentage-of-credit-sales method - application a flat percentage to the total amount of net credit sales for the period to estimate uncollectible.

    Estimated uncollectible = 5% x $130,000 = $6,500

    The company records an Allowance for Uncollectible Accounts for $6,500 while simultaneously reporting $6,500 in bad debts expense. The adjustment entry:

    Debit Bad debts expense $6,500

    Credit Allowance for Uncollectible Accounts $6,500

    The balance in the Allowance for Uncollectible Accounts after adjustment is $6,500 + $3,500 = $10,000
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