Question

Earrings Depot records bad debt using the allowance, balance sheet method. They recorded $97,440 in accounts receivable for the year and $288,550 in credit sales. The uncollectible percentage is 5.5%. What is the bad debt estimation for the year using the balance sheet method?

a) $5,359.20
b) $15,870.25
c) $9,603.75
d) $16,319.25

Answer 1

Earrings Depot's bad debt estimation using the allowance, balance sheet method is calculated by multiplying the accounts receivable ($97,440) by the uncollectible percentage (5.5%), resulting in a bad debt estimation of $5,359.20.

Step-by-step explanation:

The student's question revolves around estimating bad debt for Earrings Depot using the allowance, balance sheet method. To calculate the bad debt estimation, we apply the given uncollectible percentage of 5.5% to the accounts receivable total of $97,440. The formula for estimating bad debt is Bad Debt Expense = Accounts Receivable × Uncollectible Percentage.

Therefore, the calculation for Earrings Depot’s bad debt would be:
$97,440 × 5.5% = $5,359.20.

Thus, the correct answer for the bad debt estimation using the balance sheet method for Earrings Depot is a) $5,359.20.