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17 August, 10:15

Using the aging method of accounts receivable method, $5,000 of the company's Accounts Receivable are estimated to be uncollectible. At the end of the year, the balance of Accounts Receivable is $100,000 and the unadjusted credit balance of the Allowance for Doubtful Accounts is $500. Credit sales during the year totaled $150,000. What is the current year's Bad Debt Expense?

A. $4,500

B. $5,000

C. $7,500

D. $7,000

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Answers (2)
  1. 17 August, 11:45
    0
    A. $4,500

    Explanation:

    As the Allowance of Doubtful Accounts account already has credit balance of $500, and we need to record $5,000 expense at the end of the year. We know that Allowance of Doubtful Accounts account account has credit nature so it needed $4,500 ($5,000 - $500) to be adjusted at the end of the year to make the adjusted balance equals to $35,000. So, bad debt expense for the year will be $4,500.
  2. 17 August, 12:20
    0
    The answer is A.

    Explanation:

    Closing/Ending balance in Allowance for Doubtful Accounts = Unadjusted credit (debit) balance in Allowance for Doubtful Accounts + Bad Debt Expense

    To get Bad Debt Expense, we re-write the formula:.

    Closing/Ending balance in Allowance for Doubtful Accounts - Unadjusted ending credit (debit) balance in Allowance for Doubtful Accounts

    Ending/Closing method balance in allowance for doubtful debt = $5,000

    Unadjusted ending credit (debit) balance in Allowance for Doubtful Accounts = $500

    So we have:

    = $5,000 - $500

    = $4,500
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