Question

Hughes Company has a credit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on the review and aging of its accounts receivable at the end of the year, Hughes estimates that $60,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is:A. $5,000.B. $55,000.C. $60,000.D. $65,000.

Answer 1

B. $55,000

Step-by-step explanation:

As the existing balance of allowance for doubtful debts = $5,000

Total expected bad debts = $60,000

Therefore, new provision required = $60,000 - $5,000 = $55,000

For this bad debt expense will be debited against allowance for bad and doubtful debts.

Therefore, in this year expense of bad debts will be $55,000.

This will be charged to income statement as this will reduce profits as it is an expense.