Question

Assume Simple Co. had credit sales of $249,000 and cost of goods sold of $149,000 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 $240. What amount of Bad Debt Expense would the company record as an end-of-period adjustment

Answer 1

Simple Co. would record a Bad Debt Expense of $4,740 as an end-of-period adjustment.

Step-by-step explanation:

To calculate the amount of Bad Debt Expense that Simple Co. would record as an end-of-period adjustment, we need to determine the estimated uncollectible accounts. Simple Co. uses the percentage of credit sales method and estimates that 2% of credit sales would result in uncollectible accounts.

Therefore, the estimated uncollectible accounts would be $249,000 x 2% = $4,980.

Before the end-of-period adjustment, the Allowance for Doubtful Accounts has a credit balance of $240. To bring the allowance balance to match the estimated uncollectible accounts, we need to increase the allowance by $4,980 - $240 = $4,740.

Therefore, Simple Co. would record a Bad Debt Expense of $4,740 as an end-of-period adjustment.

Answer 2

$5,220

Step-by-step explanation:

The computation of the bad debt expense for the period end adjustment is shown below:

= Allowance of bad debts + credit balance of Allowance for Doubtful Accounts

where,

Allowance of bad debts = 2% × $249,000 = $4,980

And, the credit balance of Allowance for Doubtful Accounts is $240

Now put these values to the above formula

So, the value would equal to

= $4,980 + $240

= $5,220

The journal entry is shown below:

Bad debt expense A/c Dr $5,220

To Allowance for Doubtful Accounts $5,220

(Being bad debt is recorded)