Question

The following is a portion of the current assets section of the balance sheets of Avanti's, Inc., at December 31, 2020 and 2019: 12/31/20 12/31/19 Accounts receivable, less allowance for bad debts of $9,887 and $17,439, respectively $173,948 $239,842

Required:
a. If $11,722 of accounts receivable were written off during 2020, what was the amount of bad debts expense recognized for the year? (Hint Use a T-account model of the Allowance account, plug in the three amounts that you know, and solve for the unknown) Bad debt xpemse
b. The December 31, 2020, Allowance account balance includes $3,094 for a past due account that is not likely to be collected. This account has not been written off (1) If it had been written off, will there be any effect of the write-off on the working capital at December 31, 2020?

Answer 1

The bad debts expense for Avanti's Inc. for the year 2020 is calculated to be $19,274. Writing off a specific bad debt account would not affect the working capital, as it only alters both accounts receivable and the allowance for bad debts on the balance sheet, which offset each other.

Step-by-step explanation:

When calculating the bad debts expense for the year, we need to consider the change in the allowance for bad debts and the actual receivables that were written off. Based on the information provided:
Allowance for bad debts at the end of 2019 was $17,439.
Allowance for bad debts at the end of 2020 is $9,887.
Accounts receivable written off during 2020 amounts to $11,722.

The formula to find the bad debts expense for the year is:
Bad Debts Expense = (Allowance end of 2019 - Allowance end of 2020) + Write-offs.
By substituting the given figures into the formula:
Bad Debts Expense = ($17,439 - $9,887) + $11,722.
Thus, the Bad Debts Expense for 2020 is $19,274.

Effect of Write-off on Working Capital

Concerning part b, writing off a bad account of $3,094 would not impact the working capital because it only affects the accounts receivable and the allowance for bad debts on the balance sheet, both of which are current assets. The net effect on total current assets, and thus on working capital, would be zero since they offset each other.

Answer 2

Avanti's, Inc.

Bad Debts Expense = $4,170

Step-by-step explanation:

a) Data:

Current assets section of the balance sheets of

Avanti's, Inc.,

at December 31, 2020 and 2019: 12/31/20 12/31/19

Accounts receivable, $183,835 $257,281

less allowance for bad debts of $9,887 $17,439

Balance of Accounts receivable $173,948 $239,842

Allowance for bad debts account

Account Details Debit Credit

Balance, 12/31/19 $17,439

Accounts receivable $11,722

Balance, 12/31/20 9,887

Bad debt expense 4,170

Journal Entries:

Debit Bad Debts Expense $4,170

Credit Allowance for Bad Debts $4,170

To record bad debts expense for the period.