Question

For 2018, Rahal's Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2017. During 2018, Rahal's credit sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts receivable were written off.

Rahal's final balance in its allowance for uncollectible accounts at December 31, 2018, is:

Multiple Choice

$4,040.

$4,100.

$3,800.

$4,340.

Answer 1

The correct option is C which is $3,800

Step-by-step explanation:

The final balance of Rahul in the allowance for uncollectible accounts on December 31, 2018 is computed as:

Allowance for uncollectible accounts on December 31, 2018 = Allowance for uncollectible accounts ( beginning balance) - Accounts receivable written off + Bad debt expense

= $2,100 - $2,340 + $4,040

= - $240 + $4,040

= $3,800

Working Note:

Bad debt expense = Credit Sales × 1%

= $404,000 × 1%

= $4,040