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5 December, 02:32

Calistoga Produce estimates bad debt expense at 0.60% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $487,000 and $1,520 respectively, at December 31, 2020. During 2021, Calistoga's credit sales and collections were $331,000 and $317,000, respectively, and $1,740 in accounts receivable were written off. Calistoga's final balance in its allowance for uncollectible accounts at December 31, 2021, is:

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  1. 5 December, 02:50
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    Answer: Calistoga's final balance in its allowance for uncollectible accounts at December 31, 2021 is $246.

    Explanation: Calistoga Produce applies percentage of credit sales method to estimate its bad debt expense. So 0.60% of $331,000 (credit sales) = $1,986 and the balance in allowance for doubtful accounts is $1,520. The following journals would be recorded to adjust for the estimate:

    Debit Bad debt expense $466

    Credit Allowance for doubtful accounts $466

    The $466 is the difference between $1,986 and $1,520

    Now that the company writes off $1,740 accounts receivable, the following journal entries apply:

    Debit Allowance for doubtful account $1,740

    Credit Accounts receivable $1,740

    In summary, the allowance account movement is as follows:

    Opening balance $1,520

    Additional bad debt expense 466

    Write-off during the year (1,740)

    Balance, end of the year $246
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