Question

Raegan's Allowance for Bad (Uncollectible) Debts account has a credit balance of $2 000 before Raegan's estimates and adjusts for the current year's bad debt expense. Based on experience, Raegan estimates that 4% of net credit sales will prove uncollectible during 2025. Raegan's 2025 net credit sales totaled $290 000. In accordance with GAAP and the FASB, what amount of Bad Debt (Uncollectible) expense should Raegan report on the Income Statement for the 2025? What amount should Raegan report on its Balance Sheet?

Answer 1

Based on the information provided, Raegan's Bad Debt (Uncollectible) Expense for the year 2025 is $11,600. Raegan should report this expense on the Income Statement. On the Balance Sheet, Raegan will report an Allowance for Bad Debt (Uncollectible) of $2,000.

Based on the information provided, Raegan's Bad Debt (Uncollectible) Expense for the year 2025 can be calculated by multiplying the net credit sales by the estimated percentage of uncollectible debt:

Bad Debt Expense = Net Credit Sales x Estimated Percentage of Uncollectible Debt

1. Net Credit Sales = $290,000
2. Estimated Percentage of Uncollectible Debt = 4%

Therefore, Bad Debt Expense = $290,000 x 0.04 = $11,600.

Raegan should report a Bad Debt Expense of $11,600 on the Income Statement for the year 2025. This expense represents the estimated amount of uncollectible debt based on past experience.

On the Balance Sheet, Raegan will report an Allowance for Bad Debt (Uncollectible) of $2,000, which is the existing credit balance in the account.