Question

Montgomery & Company are accounting for their bad debts. The company uses the accrual method of accounting. During the current year, M&C has $42,000 in accounts receivable. The estimated bad debts for the period is $2,000 using the allowance method of accounting for uncollectible accounts. The amount of accounts actually written off during the period is $1,700. What is the amount of bad debt expense that can be deducted for tax purposes?

Answer 1

The amount of bad debt expense that can be deducted for tax purposes is $1,700. In this method, the estimated bad debts are recorded as an expense in the financial statements.

Step-by-step explanation:

The amount of bad debt expense that can be deducted for tax purposes can be calculated using the allowance method of accounting for uncollectible accounts. In this method, the estimated bad debts are recorded as an expense in the financial statements. However, for tax purposes, only the actual amount of accounts written off can be deducted.

In this case, the estimated bad debts are $2,000, but only $1,700 was actually written off. Therefore, the amount of bad debt expense that can be deducted for tax purposes is $1,700.