Question

lawrence inc. accounts receivable of 144,500 and credit sales of 48,000 for the currently year. The adjustment credit balance is in its allowance for doubtful accounts is 500. what amount should be deviated to bad depts expense, assuming 2% of accounts are estimated to be uncollectabke at year end

Answer 1

Lawrence Inc. should record a bad debts expense of $2,390 for the current year, which is the calculation of 2% of accounts receivable minus the existing allowance for doubtful accounts.

Step-by-step explanation:

The question is asking how much Lawrence Inc. should debit to bad debt expense for the current year. To calculate this, we apply the percentage of sales that are estimated to be uncollectable to the accounts receivable balance. The company estimates that 2% of accounts will be uncollectable. Using the accounts receivable balance of $144,500, we calculate 2% of this amount which equals

$2,890 ($144,500 x 0.02).

However, since there is an existing credit balance of $500 in the allowance for doubtful accounts, this amount must be considered as well. Therefore, the total bad debts expense to be recorded would be the difference between the estimated uncollectable amount and the existing allowance, which is

$2,890 - $500 = $2,390.