Question

As of December 31, 2015, Gill Co. reported accounts receivable of $218,000 and an allowance for uncollectible accounts of $8,800. During 2016, accounts receivable increased by $22,400 , and $7,650 of bad debts were written off. An analysis of Gill Co.'s December 31, 2016, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2016 would be:$6,062.$7,212.None of these answer choices are correct.$7,650.

Answer 1

Option (A) is correct.

Step-by-step explanation:

Accounts receivable as on 12/31/2016 = $218,000

A/R as on 12/31/2017:

= Accounts receivable as on 12/31/2016 + Increase in A/R

= $218,000 + $22,400

= $240,400

uncollectible accounts = 3% of accounts receivable

= 0.03 × $240,400

= $7,212

Allowance 12/31/2016 = $8,800

Writes Off = $7,650

Therefore,

Allowance = Allowance 12/31/2016 - Writes Off

= $8,800 - $7,650

= $1,150

Hence,

Bad debt expense for 2016 = uncollectible accounts - Allowance

= $7,212 - $1,150

= $6,062