Foster Co. adjusted its allowance for uncollectible accounts at year-end. The general ledger balances for the accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively.

 Foster Co. adjusted its allowance for uncollectible accounts at year-end. The general ledger balances for the accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively. Foster uses the percentage-of-receivables method to estimate its allowance for uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year-end?
$10,000 decrease.
$10,000 increase. Correct
$50,000 decrease.
$50,000 increase.
 You Answered Correctly!
This answer is correct because the required balance of the allowance is $50,000 ($1,000,000 × 5%), and the existing balance is $40,000. Therefore an increase of $10,000 is required.