Question

At the beginning of 2015, Elixir Inc. has the following ledger balances:During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to $760,000 and $18,000 has been written off. At the end of the year, company adjusted for bad debts expense using the percent-of-sales method and applied a rate, based on past history, of 2.5%. The ending balance in the Allowance for Bad Debts would be ________. Prepare all necessary journal entries.

Answer 1

$$7,000

Step-by-step explanation:

Calculation for the ending balance in the Allowance for Bad Debts

Using this formula

Allowance for Bad Debts Ending balance =

Debts - Write offs + Bad Debt Expense

Let plug in the formula

Allowance for Bad Debts Ending balance= $5,000 - $18,000 + (2.5%*$800,000)

Allowance for Bad Debts Ending balance= $5,000 - $18,000 + $20,000

Allowance for Bad Debts Ending balance = $$7,000

Therefore the ending balance in the Allowance for Bad Debts would be $7,000