Question

Ruby Red manufactures, markets, and distributes citrus flavored soft drinks across the globe. Auby Red hired a collection agency in 2018 to increase collection rates from customers. As a result, Ruby estimates that only 2% of its 2019 credit sales will be written off, compared to the 4% of 2018 's credit sales that were estimated to be uncollectible. At Decernber 31,2019 , Fuby Red has a $12,500 credit balance in its allowance for goubthul accounts and cedit sales of $1,570,000

Required:
Use the percentage of credit sales method to calculate the bad debt expense. $ _____

Answer 1

The bad debt expense for Ruby Red in 2019 is estimated using the percentage of credit sales method by multiplying the total credit sales of $1,570,000 by the new uncollectible rate of 2%, resulting in a bad debt expense of $31,400.

Step-by-step explanation:

To calculate the bad debt expense for Ruby Red using the percentage of credit sales method, we apply the new estimated uncollectible rate to the total credit sales for 2019. Ruby Red estimated that 2% of its credit sales will be uncollectible for the year 2019, so we multiply the total credit sales of $1,570,000 by 2% to estimate the bad debt expense.

Bad debt expense = Total Credit Sales x Estimated Uncollectible Percentage

Bad debt expense = $1,570,000 x 2%

Bad debt expense = $31,400

This number represents the estimated bad debt expense for Ruby Red for the year 2019, which is the amount they expect will not be collected from credit sales.