Question

Flash co. uses the allowance method to account for bad debts. at the end of the year, flash co.'s unadjusted trial balance shows an accounts receivable balance of $45,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,500,000. based on history, flash estimates that bad debts will be 0.5% of sales. the entry to record estimated bad debts will include an debit to bad debts expense in the amount of:

A. $7,100
B. $795,000
C. $7,900
D. $750,000
E. $7,500

Answer 1

To record the estimated bad debts for Flash Co., an additional $7,100 bad debts expense is needed to adjust for the existing debit balance and reach the estimated allowance.option a.

Step-by-step explanation:

The student asked how to record the estimated bad debts expense for Flash Co. using the allowance method. With sales of $1,500,000 and an estimated bad debt percentage of 0.5%, the bad debts expense would be calculated as $1,500,000 x 0.005 = $7,500. However, since there's already a $400 debit balance in the allowance account, the company needs to adjust this balance to the correct new total. Therefore, they need an additional $7,500 - $400 = $7,100 as a bad debt expense to bring the allowance to the desired balance.

The entry to record estimated bad debts will include a debit to bad debts expense in the amount of $7,500.

To calculate the amount of bad debts, we multiply the sales amount of $1,500,000 by the estimated bad debts percentage of 0.5%:

$1,500,000 x 0.5% = $7,500

Therefore, the entry to record estimated bad debts will include a debit to bad debts expense in the amount of $7,500.