Question

Ervin Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2021, net credit sales totaled $6,000,000, and the estimated bad debt percentage is 1.50%. No previously written-off accounts receivable were reinstated during 2021. The allowance for uncollectible accounts had a credit balance of $42,000 at the beginning of 2021 and $40,000, after adjusting entries, at the end of 2021.
What is bad debt expense for 2021?

Answer 1

Answer:

$90,000

Explanation:

Given data

Net credit sales = $6,000,000

The estimated bad debt percentage is 1.50%

Credit balance in  allowance for uncollectible accounts = $42,000

Adjusted balance = $40,000

The computation of the bad debt expense is shown below:

= Net credit sales × estimated bad debt percentage

= $6,000,000 × 1.50%

= $90,000

By multiplying the net credit sales with the estimated bad debt percentage we get the bad debt expense and the same is applied in the above calculation