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Answer:
$61,000 Cr.
Explanation:
There are two views to this answer:
First, where year end balance of allowance will be 1% of net credit sales.
Provided credit sales for the period = $6.4 million
Non-collectible amount = 1% of net credit sales.
Therefore at the year end balance for un-collectible allowance for doubtful debts shall be $6.4 million [tex]\times[/tex] 1% = $64,000
Since balance is debit of $3,000
Entry shall be of $64,000 + $3,000 = $67,000 credit against bad debt expense account.
After year end adjustment entry of $67,000
Bad Debt Expense Account Dr. $67,000
To Allowance For Doubtful Debts $67,000
Balance of allowance for doubtful debts = $3,000 Dr + $67,000 Cr = $64,000 Cr.
Second view,
In this view we have the expense for the year to be $64,000 that is 1% of $6.4 million of sales.
Therefore, entry will be
Bad Debt Expense Account Dr. $64,000
To Allowance for doubtful debts A/c $64,000
Expense for current year recorded.
After this year end balance for allowance = $64,000 Cr - $3,000 Dr. = $61,000 Cr.
Since second view is more logical, it will be considered as the expense for the year shall be limited to 1% of sales = $64,000.
Thus, Final Answer = $61,000 Cr.
The balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense is $67,000.
Using this formula
Allowance for doubtful accounts balance=(Sales on credit× Estimated percentage of net credit sales)+Debit balance
Where:
Sales on credit=$6.4 million
Estimated percentage of net credit sales=1%
Debit balance=$3,000
Let plug in the formula
Allowance for doubtful accounts balance=($6.4 million×1%)+$3,000
Allowance for doubtful accounts balance=$64,000+$3,000
Allowance for doubtful accounts balance=$67,000
Inconclusion the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense is $67,000.
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