Question
A company has an initial allowance for bad debts of $7,000, writes off $17,000 in bad debts during the year and estimates $27,000 in uncollectible accounts.
Answers
GPT-4o mini
To determine the adjustment for bad debts for the year, we can follow these steps:
1. **Starting Balance**: The company has an initial allowance for bad debts of $7,000.
2. **Write-offs During the Year**: The company writes off $17,000 in bad debts. This amount reduces the allowance for bad debts:
\[
\text{Ending Allowance before adjustment} = \text{Initial Allowance} - \text{Write-offs}
\]
\[
\text{Ending Allowance before adjustment} = 7,000 - 17,000 = -10,000
\]
Since the ending balance before adjustment is negative, this means that the company has already exceeded its initial allowance for bad debts.
3. **Estimated Uncollectible Accounts**: The company estimates that total uncollectible accounts at the end of the year will be $27,000. This is the balance that the allowance for bad debts should reflect after the adjustment.
4. **Required Adjustment**: To find out how much the company needs to adjust the allowance for bad debts to reach the desired balance of $27,000, we calculate:
\[
\text{Required Adjustment} = \text{Estimated Uncollectible Accounts} - \text{Ending Allowance before adjustment}
\]
\[
\text{Required Adjustment} = 27,000 - (-10,000)
\]
\[
\text{Required Adjustment} = 27,000 + 10,000 = 37,000
\]
Therefore, the company needs to make an adjustment to its allowance for bad debts of **$37,000** to reflect the estimated uncollectible accounts at the end of the year.
1. **Starting Balance**: The company has an initial allowance for bad debts of $7,000.
2. **Write-offs During the Year**: The company writes off $17,000 in bad debts. This amount reduces the allowance for bad debts:
\[
\text{Ending Allowance before adjustment} = \text{Initial Allowance} - \text{Write-offs}
\]
\[
\text{Ending Allowance before adjustment} = 7,000 - 17,000 = -10,000
\]
Since the ending balance before adjustment is negative, this means that the company has already exceeded its initial allowance for bad debts.
3. **Estimated Uncollectible Accounts**: The company estimates that total uncollectible accounts at the end of the year will be $27,000. This is the balance that the allowance for bad debts should reflect after the adjustment.
4. **Required Adjustment**: To find out how much the company needs to adjust the allowance for bad debts to reach the desired balance of $27,000, we calculate:
\[
\text{Required Adjustment} = \text{Estimated Uncollectible Accounts} - \text{Ending Allowance before adjustment}
\]
\[
\text{Required Adjustment} = 27,000 - (-10,000)
\]
\[
\text{Required Adjustment} = 27,000 + 10,000 = 37,000
\]
Therefore, the company needs to make an adjustment to its allowance for bad debts of **$37,000** to reflect the estimated uncollectible accounts at the end of the year.