Question 1

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?

Accepted Answer

Draw a T-account for Allowance. Existing: Debit $2,000. Target Ending: Credit $25,000. Math: X - 2,000 = 25,000 -> X = 27,000.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Treating the debit balance as a credit; just recording the target amount as the expense.

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?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 4

More questions from this exam