Question

Leo Co. uses the allowance method to account for bad debts. At the end of 2010, Leo Co.'s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (credit); and sales of $500,000. Based on history, Leo estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

Answer 1

$400

Step-by-step explanation:

The computation of the Bad Debts Expense is shown below:

= Account receivable × given percentage - credit balance of allowance for doubtful accounts balance

= $25,000 × 2% - $100

= $500 - $100

= $400

And, the journal entry to record the estimated bad debt expense is

Bad debt expense A/c Dr $400

To Allowance for doubtful debts $400

(Being bad debt expense is recorded)