At January 1, 2020, the credit balance of Andy Corp.’s Allowance for Doubtful Accounts was $400,000. During 2020, the bad debt expense entry was based on a percentage of net credit sales. Net sales for 2020 were $80 million, of which 90% were on account.

Based on the information available at the time, the 2020 bad debt expense was estimated to be 0.8% of net credit sales. During 2020, uncollectible receivables amounting to $500,000 were written off against the allowance for doubtful accounts. The company has estimated that at December 31, 2020, based on a review of the aged accounts receivable, the allowance for doubtful accounts would be properly measured at $525,000.

Instructions

Prepare a schedule calculating the balance in Andy Corp.’s Allowance for Doubtful Accounts at December 31, 2020. Prepare any journal entry needed at year end to adjust the allowance for doubtful accounts to the required balance.