Question

Computing Bad Debt Expense from Transaction Data

A company estimates uncollectible accounts using the allowance method. The following is from the current year.
Allowance for Doubtful Accounts, January 1 beginning balance: $812,800 credit
Allowance for Doubtful Accounts, December 31 balance: $785,600 credit
Accounts written off during the year: $140,800
Unexpected collection of accounts receivable on accounts written off during the year: $8,000
Compute bad debt expense for the year.

Answer 1

To calculate the bad debt expense for the year, adjust the Allowance for Doubtful Accounts by accounts written off and any unexpected collections, and then solve for the expense. The calculation shows that the bad debt expense for the year is $105,600.

Step-by-step explanation:

To compute the bad debt expense for the year, we need to adjust the Allowance for Doubtful Accounts to reflect the actual accounts written off and any unexpected collections. Here's how we can calculate it:

• Start with the beginning balance of the allowance account: $812,800 credit.
• Subtract the accounts written off during the year: $140,800.
• Add back the unexpected collection of accounts receivable: $8,000.
• The resulting balance of the allowance account should be $785,600 credit.

To find the bad debt expense, we now need to solve for the amount that was added to the allowance account to reach the year-end balance after accounts were written off and collections were received.

So, the adjustment to the allowance account (which represents the bad debt expense for the year) is calculated as follows:

Bad Debt Expense = Ending allowance balance - (Beginning allowance balance - Accounts written off + Unexpected collections)

Plugging in our numbers: $785,600 - ($812,800 - $140,800 + $8,000) = $785,600 - $680,000 = $105,600.

Therefore, the bad debt expense for the year is $105,600.