Question

On December 31, Smart Touch Learning's ending accounts receivable balance is $ 190,000. Smart Touch Learning estimates that 5% of its accounts receivable balance will be uncollectible. As of December 31, the unadjusted balance in its Allowance for Bad Debts account is a $ 1,800 credit balance. What is bad debts expense for the year?

Answer 1

The bad debts expense for Smart Touch Learning is $7,700, calculated as the difference between the desired allowance for bad debts and its current unadjusted balance.

Step-by-step explanation:

The bad debt expense for the year at Smart Touch Learning is $7,700. To calculate this, we first determine the desired ending balance of the Allowance for Bad Debts account, which is 5% of the ending accounts receivable balance, or $9,500 ($190,000 * 0.05).

We then adjust the unadjusted credit balance of the Allowance for Bad Debts account, which is $1,800, to reach the desired balance.

The difference between the required balance and the current balance is the bad debts expense for the year, calculated as $9,500 - $1,800 = $7,700.