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29 July, 12:51

Sonia Corporation had a 1/1/20 balance in the Allowance for Doubtful Accounts of $60,000. During 2020, it wrote off $43,200 of accounts and collected $12,600 on accounts previously written off. The balance in Accounts Receivable was $1,200,000 at 1/1 and $1,440,000 at 12/31. At 12/31/20, Sonia estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2020

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  1. 29 July, 16:38
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    The bad debt expense for year 2020 amounts to - $42,600

    Explanation:

    The bad debt expense for year 2020 is computed as:

    Bad debt expense = Beginning balance of Allowance for Doubtful Accounts - Accounts Written off + Bad debt recoveries - Ending balance of uncollectible

    where

    Beginning balance of Allowance for Doubtful Accounts is $60,000

    Accounts Written off is $43,200

    Bad debt recoveries is $12,600

    Computing Ending balance of uncollectible as:

    Ending balance of uncollectible = 5% of Accounts receivable

    Ending balance of uncollectible = 5% * $1,440,000

    Ending balance of uncollectible = $72,000

    So, putting the values above:

    Bad debt expense = $60,000 - $43,200 + $12,600 - $72,000

    Bad debt expense = - $42,600
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