Question

Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana's unadjusted trial balance shows an accounts receivable balance of $40,000; allowance for doubtful accounts balance of $300 (credit); and sales of $500,000. Based on history, Ana estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:

Answer 1

Estimated bad debts will include a debit to bad debts expense in the amount of $500

Step-by-step explanation:

Total required allowance at the end of year = $40,000*2% = $800

Existing balance in allowance account = $300 Credit

Bad debts expense to be debited for the year = $800 - $300 = $500