Question

In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,000. During the year, Dinty wrote off $31,800 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,340,000, and cash collections from credit customers totaled $1,910,000. What bad debt expense would Dinty report in its first-year income statement? 1.$82,000.2. $50,200. 3.$113,800.

Answer 1

The correct option is 2. $50,200

Step-by-step explanation:

Please see below the required journals for the transactions that occurred:

Debit Allowance for doubtful accounts $31,800

Credit Accounts receivable $31,800

(To record write-off of accounts receivable)

Debit Accounts receivable $2,340,000

Credit Sales revenue $2,340,000

(To record credit sales during the year)

Debit Cash $1,910,000

Credit Accounts receivable $1,910,000

(To record collection on account)

• The effect of the above journals on allowance for doubtful account is a reduction. Since Dinty already assessed its allowance for doubtful account to be $82,000, bad debt expense required will be $50,200 ($82,000 - $31,800).
• The balance in accounts receivable will be $2,340,000 - $1,910,000 - $31,800 = $398,200.