Question

Assume Simple Co. had credit sales of $247,000 and cost of goods sold of $147,000 for the period. Simple uses the percentage of credit sales method and estimates that 2 percent of credit sales would result in uncollectible accounts. Before the end-of-period adjustment is made, the Allowance for Doubtful Accounts has a credit balance of $220. What amount of Bad Debt Expense would the company record as an end-of-period adjustment?

Answer 1

The company would record a Bad Debt Expense of $4,940 as an end-of-period adjustment.

Step-by-step explanation:

The company would record a Bad Debt Expense of $4,940 as an end-of-period adjustment.

To calculate the bad debt expense, we start with the credit sales of $247,000, then multiply it by the estimated uncollectible percentage of 2%.

This gives us an estimated bad debt expense of $4,940.

We subtract the credit balance in the Allowance for Doubtful Accounts of $220 from the estimated bad debt expense to find the required adjustment: $4,940 - $220 = $4,720.

Therefore, the company would record a Bad Debt Expense of $4,940 as an end-of-period adjustment.