Question

For 2024, Rahal's Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $94,000 and $3,600, respectively, at December 31, 2023. During 2024, Rahal's credit sales and collections were $419,000 and $423,000, respectively, and $3,840 in accounts receivable were written off. Rahal's 2024 bad debt expense is: Multiple Choice

O $3,840.
O None of these answer choices are correct.
O $3,600.
O $4,230.

Answer 1

Rahal's Auto Parts' bad debt expense for 2024 is calculated by applying the 1% estimate to the credit sales, which equals $4,190. As this amount is not listed in the given options, the correct choice is 'None of these answer choices are correct.'

Step-by-step explanation:

To calculate Rahal's Auto Parts' bad debt expense for 2024 based on a percentage of credit sales, we use the given percentage of 1% and apply it to the credit sales amount for 2024. The calculation is as follows:

Bad Debt Expense = 1% of Credit Sales

Bad Debt Expense = 0.01 × $419,000

The bad debt expense for 2024 is therefore calculated to be:

$4,190 (1% of $419,000)

The amount written off during the year, which is $3,840, is not the same as the bad debt expense estimated at the beginning of the year.

Given the information and the calculation above, the correct answer is not listed in the multiple-choice options provided in the question. Hence, the correct option would be 'None of these answer choices are correct.'