Question

Crane Company has outstanding accounts receivable totaling $6.40 million as of December 31 and sales on credit during the year of $22.0 million. There is also a credit balance of $11000 in the allowance for doubtful accounts. If the company estimates that 5% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year?

Answer 1

Answer:

$320,000 or $0.32 million

Explanation:

In accounting, the percentage of bad debt expenses is applied to the outstanding accounts receivable at the end of a particular accounting period.

In the question, the end of the accounting period is given as December 31 and the outstanding accounts receivable as at that December 31 is a total of $6.40 million. Therefore, we will disregard other values and simply apply 5% to the the outstanding accounts receivable of $6.40 million as at that December 31 as follows:

Bad debt = Outstanding accounts receivable × 5%

               = $6.40 million × 5%

               = $6,400,000 ×  5%

               = $320,000

Therefore, the amount of bad debt expense to recognized for the year is $320,000 or $0.32 million.