Question

As of December 31, 2021, Amy Jo's Appliances had unadjusted account balances in accounts receivable of $311,000 and $970 in the allowance for uncollectible accounts, following 2021 write-offs of $6,450 in bad debts. An analysis of Amy Jo's December 31, 2021, accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for 2021 should be:

A. $5,230
B. $6,220
C. $6,390
D. None of the above is correct

Answer 1

To calculate the bad debt expense for Amy Jo's Appliances, we find 2% of the accounts receivable, which amounts to $6,220, and compare it with the existing allowance after write-offs. The difference of $5,250 represents the adjustment needed, which does not match any of the given options, therefore the correct answer is 'None of the above is correct'.

Step-by-step explanation:

The question relates to calculating the bad debt expense for Amy Jo's Appliances for the year 2021. To determine the bad debt expense, we need to adjust the allowance for uncollectible accounts to reflect the desired ending balance of 2% of the accounts receivable. First, we calculate 2% of the accounts receivable:

2% of $311,000 = 0.02 × $311,000 = $6,220.

This is the amount the allowance for uncollectible accounts should be at the end of the period. Since the current allowance before adjustments is $970 (after write-offs of $6,450), we need to determine the amount required to adjust the allowance to $6,220.

The bad debt expense is the difference between the desired ending balance of the allowance and the current balance after write-offs:

Bad debt expense = Desired ending balance - Current allowance balance

Bad debt expense = $6,220 - $970

Bad debt expense = $5,250.

However, none of the options given exactly match the calculated figure. Therefore, the correct answer would be:

D. None of the above is correct

Answer 2

D. None of the above is correct

Step-by-step explanation:

• accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable.

Dr Bad Debt Expense $ 5,250

Cr Allowance for Uncollectible Accounts $ 5,250

As the company analize the values at December 31, 2021 it's not necessary consider the write off done during 2021, it means that to calculate the Bad Debt Expenses the company has to analize the balance on Accounts Receivable at December 31, 2021, which is:

December 31. 2021

Dr Accounts Receivable $ 311,000

Cr Allowance for Doubtful Accounts $ 970

So , the Bad Debt Expenses should be :

Dr Bad Debt Expense $ 5,250

Cr Allowance for Uncollectible Accounts $ 5,250

None of the value presented as option are correct.

December 31. 2021

Dr Accounts Receivable $ 311,000

Cr Allowance for Doubtful Accounts $ 970

Following 2021 write-offs of $6,450 in bad debts

Dr Allowance for Uncollectible Accounts $ 6,450

Cr Accounts Receivable $ 6,450

accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable.

Dr Bad Debt Expense $ 5,250

Cr Allowance for Uncollectible Accounts $ 5,250

If the company applies the allowance method, it means that the account Allowance for Uncollectible Accounts must show as balance the % estimated of accounts receivables as CREDIT.

Because the company already has a CREDIT balance in the Allowance for Doubtful Accounts it's necessary to register an entry that complement the existing value and reflect the value as % of account receivable.