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B is corrent. The ending balance of the allowance for doubtful accounts includes the Beginning balance + Recoveries of bad debts written off in prior years + Current year’s bad debt expense – Write-offs of uncollectibles. The beginning balance was $10,000 and write-offs (debits) were $18,000. Recoveries of bad debts written off in prior years ($5,000) would be a credit to the allowance account and a debit to accounts receivable. Finally, the credit to the allowance account for bad debts expense would be $20,000 (2% of $1,000,000), leaving a 12/31/Y1 balance of $17,000.


A is incorrect because it fails to consider the recoveries.
C is incorrect because it represents the bad debt expense, not the allowance balance.
D is incorrect because it fails to consider the write-offs and reinstatements.