Question

Smithson Corporation had a 1/1/20 balance in the Allowance for Doubtful Accounts of $30,000. During 2020, it wrote off $21,600 of accounts and collected $6,300 on accounts previously written off. The balance in Accounts Receivable was $600,000 at 1/1 and $720,000 at 12/31. At 12/31/20, Smithson estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2020?

Answer 1

Bad Debt Expense for 2020: $21,300

Step-by-step explanation:

During 2020, when wrote of accounts, the following entry was made:

Debit Allowance for Doubtful Accounts $21,600

Credit Accounts Receivable $21,600

When collected on accounts previously written of:

Debit Accounts Receivable $6,300

Credit Allowance for Doubtful Accounts $6,300

Debit Cash $6,300

Credit Accounts Receivable $6,300

At 12/31/20, before adjusting, the balance of Allowance for Doubtful Accounts was credit: $30,000 - $21,600 + $6,300 = $14,700

Bad debts was estimated: 5% x $720,000 = $36,000

Bad Debt Expense for 2020 for adjusting entry:

$36,000 - $14,700 = $21,300