How do i calculate this problem. In 2007 the Pearl Boutique had net credit sales of $750,000. On January 1, 2007, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2007, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivable (percentage of receivable basis). If the accounts receivable balance at December 31 was $200,000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2007?

Question

How do i calculate this problem. In 2007 the Pearl Boutique had net credit sales of $750,000. On January 1, 2007, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2007, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivable (percentage of receivable basis). If the accounts receivable balance at December 31 was $200,000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2007?

Answer 1

To calculate the required adjustment to the Allowance for Doubtful Accounts at December 31, 2007, you will need to follow these steps:

1. Calculate the desired ending balance for the Allowance for Doubtful Accounts based on the percentage of the receivable basis. In this case, the accounts receivable balance at December 31, 2007, is given as $200,000. Multiply this by the percentage of 10% to find the desired ending balance. 10% of $200,000 is $20,000.

2. Determine the necessary adjustment to reach the desired ending balance. To do this, compare the desired ending balance to the current balance in the Allowance for Doubtful Accounts. The current balance is given as a credit of $16,000. The necessary adjustment is the difference between the desired ending balance and the current balance. In this case, it is $20,000 - $16,000 = $4,000.

Therefore, the required adjustment to the Allowance for Doubtful Accounts at December 31, 2007, is $4,000.