Question

4. You have determined that Company X estimates bad debt expense with an aging of accounts receivable schedule. Company X's estimate of uncollectible receivables resulting from the aging analysis equals $250. The beginning balance in the allowance for doubtful accounts was $220. Write-offs of bad debts during the period were $180. What amount would be recorded as bad debt expense for the current period? a. $180 b. $250 c. $210 d. $220

Answer 1

a. $180

Step-by-step explanation:

Bad debt expenses is generally classified as Administrative expense and hence it is included in the expense section of the income statement before the calculation of the Net Income.

From the question it is evident that the write offs during the period were $180 and hence the expense recorded in the Income statement as bad debt expense would be $180 because they are unrecoverable for the current period.

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Answer 2

c. $210

Step-by-step explanation:

When a company makes sales on account, debit accounts receivable and credit sales. Based on assessment, some or all of the receivables may be uncollectible.

To account for this, debit bad debit expense and credit allowance for doubtful debt. Should the debt become uncollectible (i.e go bad), debit allowance for doubtful debt and credit accounts receivable.

Given that the bad debts written off were $180 and the beginning balance in the allowance for doubtful accounts was $220, the amount in the allowance for doubtful accounts after the write off

= $220 - $180

= $40

Since estimate of uncollectible receivables resulting from the aging analysis equals $250, additional amount to be provided for

= $250 - $40

= $210

Entries required are

Debit Bad debt expense $210

Credit Allowance for doubtful debt $210