Question

Business has outstanding accounts receivable totaling $1.27 million as of december 31 and sales on credit during the year of $6.4 million. there is also a credit balance of $6,000 in the allowance for doubtful accounts. if the company estimates that 1% of its sales will be uncollectible, what will be bad debt expense? $70,000. $76,000 $64,000 $58,000

Answer 1

The bad debt expense is calculated as 1% of the total credit sales, which equals $64,000. This is based on the company's estimation that 1% of its credit sales will be uncollectible.

Step-by-step explanation:

The student's question pertains to the calculation of bad debt expense for a business with a specific scenario regarding accounts receivable and sales. To calculate the bad debt expense, one needs to apply the given percentage to estimate uncollectible accounts to the credit sales. The company estimates that 1% of its sales will be uncollectible, which means the bad debt expense will be 1% of the total credit sales of $6.4 million. Hence, the bad debt expense for the year will be:

Bad Debt Expense = 1% of $6,400,000

Bad Debt Expense = $64,000

Despite the presence of a credit balance of $6,000 in the allowance for doubtful accounts, this is not directly relevant to the calculation of the bad debt expense, which is based solely on the current year's credit sales and the estimated percentage of those sales considered uncollectible.