Question

Lewis Company uses the allowance method for recording its expected credit losses. It estimates bad debts at 2% of credit sales, which were $900,000 during the year. On December 31, the Accounts Receivable balance was $150,000, and the Allowance for Doubtful Accounts had a balance of $12,200 before adjustments. What is the amount of bad debt expense Lewis Company will report on their Income Statement this year?

a. 12,200
b.2.756
c. 3,000
d. 18,000
e. 17,756

Answer 1

d. 18,000

Step-by-step explanation:

The computation of the bad debt expense recorded in the income statement is shown below:

= Credit sales × estimate percentage given

= $900,000 × 2%

= $18,000

The journal entry is also shown below:

Bad debt expense Dr $18,000

To Allowance for doubtful accounts $18,000

(Being the bad debt expense is recorded)