Question

Wrangler Inc. uses the percentage of credit sales method to estimate Bad Debt Expense. At the end of the year, the company's unadjusted trial balance includes the following:

-Accounts receivable=$366,000
-Allowance for Doubtful Accounts (credit balance)=$1,900
-Net Credit Sales=$917,000
Wrangler has experienced bad debt losses of 0.8% of credit sales in prior periods. What is the Bad Debt Expense to be recorded for the year?
a. $7,336
b. $8,319
c. $5,436
d. $6,419

Answer 1

The Bad Debt Expense to be recorded for the year by Wrangler Inc. is calculated using the net credit sales and the historical bad debt percentage, resulting in $7,336.

correct option is a. $7,336

Step-by-step explanation:

The Bad Debt Expense for Wrangler Inc. is calculated using the percentage of credit sales method. Given that the company's net credit sales for the year are $917,000 and they have historically experienced a bad debt percentage of 0.8%, we multiply the net credit sales by the bad debt percentage to estimate the Bad Debt Expense:

Bad Debt Expense = Net Credit Sales × Bad Debt Percentage

Bad Debt Expense = $917,000 × 0.008

Bad Debt Expense = $7,336

Therefore, the Bad Debt Expense to be recorded for the year is $7,336.