Question

Use the following information: Accounts receivable, beginning of year: $16,000 Allowance for Uncollectible Accounts, beginning of year: $1,200 Net credit sales during the year: $105,000 Collections on accounts receivable during the year: $93,000 Delinquent accounts written off during the year: $1,600 Assume all accounts have normal balances. If bad debts are estimated to be 10% of ending accounts receivable, the adjusting entry to recognize bad debts would debit bad debt expense for

Answer 1

Bad debts expense is $ 2240

Explanation:

Given that;

Accounts receivable, beginning of year = $16,000

Allowance for Uncollectible Accounts, beginning of year = $1,200

Net credit sales during the year = $105,000

Collections on accounts receivable during the year = $93,000

Delinquent accounts written off during the year: $1,600

If bad debts are estimated to be 10% of ending accounts receivable, the adjusting entry to recognize bad debts would debit bad debt expense for;

Account Receivable, ending = ( Accounts Receivable, beginning + Net credit sales - Collections on account - Accounts written off )

Account Receivable, ending = ( $16,000 + $105,000 - $93,000 - $1,600 )

Account Receivable, ending = $ 26,400

Estimated accounts uncollectible = (26,400 × 10%) = 2640

Allowance for uncollectible accounts debit balance = ( 1600 - 1200) = 400

so

Bad debts expense = Estimated accounts uncollectible - Allowance for uncollectible accounts debit balance

we substitute

Bad debts expense = (26,400 × 10%) - ( 1600 - 1200)

Bad debts expense = 2640 - 400

Bad debts expense = $ 2240

Therefore, Bad debts expense is $ 2240