Calistoga Produce estimates bad debt expense at 0.50% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $473,000 and $1,520 respectively, at December 31, 2020. During 2021, Calistoga’s credit sales and collections were $326,000 and $312,000, respectively, and $1,810 in accounts receivable were written off.  What is Calistoga’s final balance in its allowance for uncollectible accounts at December 31, 2021?
Calistoga Produce estimates bad debt expense at 0.50% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $473,000 and $1,520 respectively, at December 31, 2020. During 2021, Calistoga’s credit sales and collections were $326,000 and $312,000, respectively, and $1,810 in accounts receivable were written off.
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What is Calistoga’s final balance in its allowance for uncollectible accounts at December 31, 2021?
The Correct Answer and Explanation is :
To calculate Calistoga Produce’s final balance in its allowance for uncollectible accounts at December 31, 2021, we need to follow these steps:
1. Determine Bad Debt Expense for 2021
The company estimates its bad debt expense at 0.50% of credit sales. We are given the credit sales for 2021 as $326,000.
Bad Debt Expense = 0.50% of $326,000 = 0.005 × $326,000 = $1,630
2. Determine the Ending Balance of Allowance for Uncollectible Accounts
The allowance for uncollectible accounts will be affected by the following:
- The beginning balance of the allowance account (given as $1,520).
- The bad debt expense recorded for 2021 ($1,630).
- The write-offs during the year ($1,810). The formula to calculate the ending balance of the allowance for uncollectible accounts is: [
\text{Ending Balance of Allowance} = \text{Beginning Balance} + \text{Bad Debt Expense} – \text{Write-offs}
] Substituting the known values:
[
\text{Ending Balance of Allowance} = 1,520 + 1,630 – 1,810
]
[
\text{Ending Balance of Allowance} = 1,340
]
3. Final Answer
The final balance in the allowance for uncollectible accounts at December 31, 2021, is $1,340.
Explanation:
The allowance for uncollectible accounts is adjusted by estimating the bad debt expense based on credit sales and accounting for actual write-offs. The bad debt expense is added to the allowance balance, and write-offs reduce it. As a result, the final allowance balance reflects the estimated uncollectible portion of the accounts receivable as of December 31, 2021.
I’ll also generate a visual breakdown of these calculations.
Here’s the visual breakdown of the calculation for Calistoga Produce’s allowance for uncollectible accounts. It shows the initial balance, the bad debt expense, the write-offs, and the resulting ending balance of $1,340 at December 31, 2021.
This illustration helps clarify how each component affects the final balance in the allowance account. Let me know if you need further clarification or assistance!
