Question

ABC Corporation had a 1/1/20 balance in the Allowance for Doubtful Accounts of $40,000. During 2020, it wrote off $28,800 of accounts and collected $8,400 on accounts previously written off. The balance in Accounts Receivable was $960,000 at 1/1 and $800,000 at 12/31. At 12/31/20, Vasguez estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2020

Answer 1

$20,400

Step-by-step explanation:

The computation of the bad debt expense for 2020 is shown below:

Ending balance of Allowance for Uncollectible Accounts = Beginning balance of Allowance for Uncollectible Accounts + bad debts -write off amount

where,

Ending balance of allowance for uncollected accounts is

= $800,000 × 5%

= $40,000

Beginning balance of Allowance for Uncollectible Accounts is $40,000

And, the written off amount is

= $28,800 - $8,400

= $20,400

So, the bad debt expense is

= $40,000 - $40,000 + $20,400

= $20,400

We simply applied the above formula so that the bad debt could arrive