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An analysis of receivables estimates $8,000 of bad debt for the year. The Allowance for receivables has no balance left over from last year. What is the adjusting entry amount?
A$8,000
B$0
C$7,400
D$8,600
Answer & Solution
Correct answer: A. $8,000
1. Target closing allowance = $8,000.
2. Existing balance = $0.
3. Adjustment = target - existing = $8,000 - $0 = $8,000.
4. $7,400 and $8,600 assume a prior balance; $0 records nothing. All wrong.
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §4.4 "Allowance Method - Analysis of Receivables", p.142_
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