Question

Saint John Industries uses the percentage of credit sales method to estimate Bad Debt Expense. The company reported net credit sales of $670,000 during the year. Saint John has experienced bad debt losses of 5% of credit sales in prior periods. At the beginning of the year, Saint John has a credit balance in its Allowance for Doubtful Accounts of $5,700. No write-offs or recoveries were recorded during the year. What amount of Bad Debt Expense should Saint John recognize for the year?

Answer 1

$33,500

Explanation:

Relevant data provided

Total Credit Sales = $670,000

Percentage of bad debts = 5%

The computation of Bad Debt Expense is shown below:-

Bad Debt Expense = Total Credit Sales × Percentage of bad debts

= $670,000 × 5%

= $33,500

Therefore for computing the bad debt expenses we simply multiply the total credit sales with percentage of bad debts.