ExpertMedium1 markMultiple Choice
CPA · Question 19 · Area II: Balance Sheet Accounts
At year-end, a company has a balance in Accounts Receivable of $500,000. The Allowance for Credit Losses has a debit balance of $2,000 before adjustment. An aging analysis estimates expected credit losses to be $25,000. What is the Credit Loss Expense for the year?
At year-end, a company has a balance in Accounts Receivable of $500,000. The Allowance for Credit Losses has a debit balance of $2,000 before adjustment. An aging analysis estimates expected credit losses to be $25,000. What is the Credit Loss Expense for the year?
Answer options:
A.
$23,000
B.
$25,000
C.
$2,000
D.
$27,000
How to approach this question
Draw a T-account for Allowance. Existing: Debit $2,000. Target Ending: Credit $25,000. Math: X - 2,000 = 25,000 -> X = 27,000.
Full Answer
D.$27,000✓ Correct
Target Ending Balance (Credit): $25,000<br/>Existing Balance (Debit): ($2,000)<br/>Adjustment Required = Target - Existing<br/>$25,000 - (-$2,000) = $27,000.<br/>Entry: Dr Credit Loss Expense $27,000; Cr Allowance $27,000.
Common mistakes
Treating the debit balance as a credit; just recording the target amount as the expense.
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