Answer: a. $22,000
b. $16,000
Explanation:
The amount to be added to Allowance for Doubtful Accounts in each of the following cases are:
a. Balance of $3,000 in the allowance account just prior to adjustment. Analysis of accounts receivable indicates doubtful accounts of $25,000.
The amount to be added to the allowance for doubtful accounts will be doubtful accounts of $25,000 minus the balance of $3,000 in the allowance account just prior to adjustment. This will be:
= $25,000 - $3000
= $22000
b. Balance of $500 in the allowance account just prior to adjustment. Uncollectibles are estimated at 2% of sales, which totaled $800,000 for the year.
The amount to be added to the allowance for doubtful accounts will be:
= 2% of $800,000
= 2/100 × $800,000
= 0.02 × $800,000
= $16,000
