Question

Assume Simple Co. had credit sales of $247,000 and cost of goods sold of $147,000 for the period. Simple uses the percentage of credit sales method and estimates that 2 percent of credit sales would result in uncollectible accounts. Before the end-of-period adjustment is made, the Allowance for Doubtful Accounts has a credit balance of $220. What amount of Bad Debt Expense would the company record as an end-of-period adjustment?

Answer 1

Answer:

$4,720

Explanation:

Tricky, but EASY!

The balance for ALLOWANCE FOR DOUBTFUL ACCOUNTS should be 2% of Credit Sales.

That is 2%(247,000)= 4,940.

However, there is already a balance of 220. So we must adjust it to be equal to 4,940 by adding the difference!

4,940 -220= 4,720

And the entry is

Bad debt expense  4,720

                    Allowance for Doubtful Accounts 4,720