Question

Smithson Corporation had a 1/1/17 balance in the Allowance for Doubtful Accounts of $30,000. During 2017, it wrote off $21,600 of accounts and collected $6,300 on accounts previously written off. The balance in Accounts Receivable was $600,000 at 1/1 and $720,000 at 12/31. At 12/31/17, Smithson estimates that 5% of accounts receivable will prove to be uncollectible. What is the Bad Debt Expense for 2017?

Answer 1

The Bad Debt Expense for Smithson Corporation for the year 2017 is $21,300, determined by adjusting the beginning balance in the Allowance for Doubtful Accounts for accounts written off and recovered, and reconciling this with the estimated uncollectible amount based on 5% of the year-end accounts receivable balance.

Step-by-step explanation:

The calculation of Bad Debt Expenses for Smithson Corporation for the year 2017 involves several steps. First, we start with the beginning balance in the Allowance for Doubtful Accounts and adjust for write-offs and recoveries. Then we calculate the ending balance needed based on the estimated percentage of uncollectible accounts receivable. Finally, we reconcile the needed ending balance with the beginning balance and adjustments to find the Bad Debt Expense.

Calculations:

• Beginning Allowance for Doubtful Accounts: $30,000
• Accounts Written Off: $21,600
• Recovered on Accounts Previously Written Off: $6,300
• Ending Balance in Accounts Receivable: $720,000
• Uncollectible Estimate: 5% of Accounts Receivable = $720,000 x 5% = $36,000

Adjusted Allowance for Doubtful Accounts after write-offs and recoveries = $30,000 - $21,600 + $6,300 = $14,700.

The Bad Debt Expense is the amount needed to adjust the Allowance for Doubtful Accounts to the estimated ending balance of $36,000. So, the Bad Debt Expense equals $36,000 - $14,700 = $21,300.