Question

Based on the industry average, Davis Corporation estimates that its bad debts should average 3% of credit sales. The balance in the allowance for uncollectible accounts at the beginning of Year 3 was $140,000. During Year 3, credit sales totaled $10,000,000, accounts of $100,000 were deemed to be uncollectible, and payment was received on a $20,000 account that had previously been written off as uncollectible. The entry to record bad debt expense at the end of Year 3 would include a credit to the allowance for uncollectible accounts of______

Answer 1

The entry to record bad debt expense at the end of Year 3 would include a credit to the allowance for uncollectible accounts of $160,000.

Step-by-step explanation:

The entry to record bad debt expense at the end of Year 3 would include a credit to the allowance for uncollectible accounts of $300,000.

To calculate the bad debt expense, we need to determine the amount of uncollectible accounts. We can calculate this by multiplying the credit sales by the estimated bad debt rate. In this case, the credit sales are $10,000,000 and the estimated bad debt rate is 3%, so the uncollectible accounts amount to $10,000,000 x 0.03 = $300,000.

Since the balance in the allowance for uncollectible accounts at the beginning of Year 3 was $140,000, the entry to record bad debt expense at the end of Year 3 would be a credit to the allowance for uncollectible accounts in the amount of $300,000 - $140,000 = $160,000.