Answer:
To calculate the estimated uncollectible accounts expense for the first year, we need to follow these steps:
Calculate the amount of uncollectible accounts based on the owner's estimate of 5 percent of sales on account.
Determine the adjustment needed to recognize the uncollectible accounts expense.
Adjust the accounts receivable balance to reflect the estimated uncollectible accounts expense.
Let's break it down:
Calculate the estimated uncollectible accounts expense:
Estimated uncollectible accounts expense = 5% of service revenue on account
Estimated uncollectible accounts expense = 5% * $310,000
Estimated uncollectible accounts expense = $15,500
Determine the adjustment needed:
Since the uncollectible accounts expense is an estimate, we need to adjust the accounts receivable balance by recognizing the expense. This adjustment will reduce the net realizable value of accounts receivable.
Adjust the accounts receivable balance:
Accounts receivable balance after adjustment = Accounts receivable balance - Estimated uncollectible accounts expense
Accounts receivable balance after adjustment = $60,938 - $15,500
Accounts receivable balance after adjustment = $45,438
So, after recognizing the estimated uncollectible accounts expense, the adjusted accounts receivable balance at the end of Year 1 would be $45,438.
