Question

1.Castle Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $800,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $45,000 at the beginning of 2021 and $28,000 in receivables were written off during the year as uncollectible. Also, $3,000 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 10% to accounts receivable at the end of the year. What amount should Castle charge to bad debt expense at the end of 2021 under balance sheet approach (percentage of A/R)

Answer 1

The answer is: bad debt expense at the end of 2021 under balance sheet approach $60,000.

Step-by-step explanation:

* Under the balance sheet approach, the allowance for doubtful debt at the end of 2021 should be: Account receivable at the end of 2021 x estimated percentage of bad debt = 800,000 x 10% = $80,000

* Fluctuations in the Allowance for bad debt during 2021 includes:

+ Decrease by $28,000 due to bad debt written-off;

+ Increase by $3,000 due to reverse bad-debt written off

=> Net effect: Decrease by $25,000

* As Allowance for bad debt should be 80,000, we have the following equation:

Beginning balance - 25,000 + Bad debt expenses recorded at the end of 2021 = 80,000 <=> 45,000 - 25,000 + Bad debt expenses recorded at the end of 2021 = 80,000 <=> Bad debt expenses recorded at the end of 2021 = $60,000.

So, the bad debt expenses at the end of 2021 is $60,000.