Sarah had net sales (all on account) in 2020 of $800000. At December 31, 2020, before adjusting entries, the balances in selected accounts were: accounts receivable $1120000 debit, and allowance for doubtful accounts $2260 debit. Sarah estimates that 3% of its accounts receivable will prove to be uncollectible. What is the net amount expected to be collected of the receivables reported on the financial statements at December 31, 2020?

a.) $1084140

b.) $35860

c.) $1088660

d.) $1086400

d.) $1086400

Explanation:

Estimated uncollectible = 3% x $1,120,000 = $33,600

At December 31, 2020, before adjusting entries, the balance allowance for doubtful accounts was $2,260 debit. The bad debts expense in 2020 was:

$33,600 + $2,260 = $35,860

The adjustment entry:

Debit Bad debts expense: $35,860

Credit Allowance for doubtful accounts: $35,860

After adjusting entry, Balances in Allowance for doubtful accounts: $35,860-$2260=$33,600 credit

The net amount expected to be collected of the receivables reported on the financial statements at December 31, 2020:

Balances in Accounts receivable - Balances in Allowance for doubtful accounts = $1,120,000 - $33,600 = $1,086,400