Determine the Amount to Be Added to Allowance for Doubtful

question 199

Essay

Determine the amount to be added to Allowance for Doubtful Accounts in each of the following cases and indicate the ending balance in each case.(a)Credit balance of $300 in Allowance for Doubtful Accounts just prior to adjustment. Using the aging method, the balance of Allowance for Doubtful Accounts is estimated as $8,500.(b)Credit balance of $500 in Allowance for Doubtful Accounts just prior to adjustment. Bad debt expense is estimated at 2% of credit sales, which totaled $1,000,000 for the year.

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Definitions:

Line-Of-Credit

A financial arrangement in which a bank or other lender provides a maximum loan amount that the borrower can draw from as needed, but does not exceed over a specified period.

Needed Cash

The amount of liquidity a company or individual requires to meet immediate obligations or for short-term goals.

Commercial Paper

Commercial Paper is an unsecured, short-term debt instrument issued by corporations, typically for the financing of operating expenses and meeting short-term liabilities.

Maturity

The date when a financial instrument (like a bond) expires and the principal is to be paid back to creditors.