Question

Lewis Company uses the allowance method for recording its expected credit losses. It estimates bad debts at 2% of credit sales, which were $900,000 during the year. On December 31, the Accounts Receivable balance was $150,000, and the Allowance for Doubtful Accounts has a balance of $12,200 before adjustments.What is the amount of bad debt expense Lewis Company will report on their Income Statement this year?

Answer 1

The amount which is to be reported in the income statement under the head of bad debt expense is $18,000

Step-by-step explanation:

The company had a bad debts of 2% on credit sales, and that amounts for the year is $900,000. So, it is computed as:

Bad debt expense = Credit Sales × 2%

= $900,000 × 2%

= $18,000

Therefore, the amount of $18,000 will be the bad debt expense of the company for the year.