Question

on april 1, abc has an accounts receivable balance of $190,000. during the month, credit sales total $210,000. as a result of collections efforts, the aging of accounts receivable is as follows for april 30: current $100,000 (1% is estimated to be uncollectible) 0-30 days past due $50,000 (5% is estimated to be uncollectible) 31-60 days past due $20,000 (10% is estimated to be uncollectible) 31-90 days past due $10,000 (20% is estimated to be uncollectible) >90 days past due $20,000 (50% is estimated to be uncollectible) balance in allowance for doubtful accounts (prior to any april 30 entry) $5,000 credit if abc is using the % of accounts receivable method of estimating its bad debts, what is the increase to bad debt expense at the end of april?

Answer 1

The increase to bad debt expense at the end of April is $12,500, calculated by evaluating the estimated uncollectible percentages for each category of receivables, summing them together, and subtracting the existing allowance for doubtful accounts balance.

Step-by-step explanation:

The increase to bad debt expense at the end of April can be calculated by estimating the uncollectible accounts based on the aging of accounts receivable and applying the respective uncollectible percentages. We need to analyze each category of the receivables for their estimated uncollectible amounts.

• Current $100,000 at 1% uncollectible: $1,000
• 0-30 days past due $50,000 at 5% uncollectible: $2,500
• 31-60 days past due $20,000 at 10% uncollectible: $2,000
• 31-90 days past due $10,000 at 20% uncollectible: $2,000
• >90 days past due $20,000 at 50% uncollectible: $10,000

Adding all these up gives us a total estimated uncollectible amount of $17,500. There is already a balance of $5,000 in the allowance for doubtful accounts. The bad debt expense for April would therefore be the difference, which is $17,500 - $5,000, resulting in an increase of $12,500.