Drew Corp had a beginning balance on January 1, 2019 in Accounts Receivable of $200,000 and a beginning credit balance in the Allowance for Doubtful Accounts of $4,000. During 2019, Drew sold $1,000,000 of goods on credit and collected $800,000. If Drew estimates that 2% of their ending accounts receivable will eventually not be collected, the adjusting journal entry for the Bad Debt Expense will include a credit to Allowance for Doubtful Accounts of A. $ 4,000 B. $ 8,000 C. $ 16,000 D. $ 6,980 E. none of the listed choices

Question

Rylie Anderson

Business

17 May, 17:29

Drew Corp had a beginning balance on January 1, 2019 in Accounts Receivable of $200,000 and a beginning credit balance in the Allowance for Doubtful Accounts of $4,000. During 2019, Drew sold $1,000,000 of goods on credit and collected $800,000. If Drew estimates that 2% of their ending accounts receivable will eventually not be collected, the adjusting journal entry for the Bad Debt Expense will include a credit to Allowance for Doubtful Accounts of A. $ 4,000 B. $ 8,000 C. $ 16,000 D. $ 6,980 E. none of the listed choices

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Answers (1)

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Derek Flowers · Answer 1

The adjusting journal entry for the Bad Debt Expense will include a credit to Allowance for Doubtful Accounts of A. $ 4,000

Explanation:

Ending balance in Accounts Receivable = Beginning balance in Accounts Receivable + Sales on credit - Cash Collected = $200,000 + $1,000,000 - $800,000 = $400,000

Drew estimates that 2% of their ending accounts receivable will eventually not be collected.

Estimated uncollectible = 2% x $400,000 = $8,000

Drew Corp had a beginning credit balance in the Allowance for Doubtful Accounts of $4,000. Bad debts expense = $8,000 - $4,000 = $4,000

The adjusting journal entry for the Bad Debt Expense:

Debit Bad debts expense $4,000

Credit Allowance for Doubtful Accounts $4,000