Question

As of December 31, 2020, Gill Co. reported accounts receivable of $230,000 and an allowance for uncollectible accounts of $9,000. During 2021, accounts receivable increased by $22,400, (that change includes $7,300 of bad debts that were written off). An analysis of Gill Co.'s December 31, 2021, accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for 2021 would be:

Answer 1

$3,348

Step-by-step explanation:

At the year end

Account Receivable Balance = $230,000 + $22,400 = $252,400

Allowance for uncollectible accounts = $9,000 - $7,300 = $1,700

Bad debt Expense will be calculated using the percentage of debt loss. The expense will be calculated using the account receivable balance.

Closing Value of the Allowance for Doubtful Accounts will be as follow

Closing Balance = $252,400 x 2% = $5,048

As Allowance for Doubtful Accounts already have credit balance of $1,700, we need to adjust the remainder to make the closing balance of Allowance for Doubtful Accounts $5,048 at the year end.

Adjustment Value = $5,048 - $1,700 = $3,348