Question

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

Answer 1

Answer:

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