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16 May, 19:07

Grey Corporation has $100,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a credit of $1,000. Experience suggests 5 percent of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is: a.$1,000 b.$2,070 c.$5,000 d.$6,000 e.$4,000

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  1. 16 May, 19:22
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    e. $4,000

    Explanation:

    The calculation of adjusting entry is shown below:-

    Adjusted balance required in Allowance account = Accounts receivable * Receivable percentage

    = $100,000 * 5%

    = $5,000 Credit

    Existing Unadjusted balance in Allowance account = $1,000 credit

    Bad Debt Expense = Adjusted balance required in Allowance account - Existing Unadjusted balance in Allowance account

    = $5,000 - $1,000

    = $4,000

    So, for computing the bad debt expenses we simply deduct existing Unadjusted balance in Allowance account from adjusted balance required in Allowance account
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Home » Business » Grey Corporation has $100,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a credit of $1,000. Experience suggests 5 percent of its receivables will be uncollectible.
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