Question

Flyer Company has provided the following information prior to any year-end bad debt adjustment:Cash sales, $167,000Credit sales, $467,000Selling and administrative expenses, $127,000Sales returns and allowances, $47,000Gross profit, $507,000Accounts receivable, $275,000Sales discounts, $31,000Allowance for doubtful accounts credit balance, $2,900Flyer estimates bad debt expense assuming that 2% of credit sales have historically been uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded?a) $12,240.b) $9,340.c) $9,780.d) $6,440.

Answer 1

Answer:

The balance in the allowance for doubtful accounts after bad debt expense is recorded is $12,240. Option A

Explanation:

Cash sales = $167,000

Credit sales = $467,000

Selling and administrative expenses = $127,000

Sales returns and allowances = $47,000

Gross profit = $507,000

Accounts receivable = $275,000

Sales discounts = $31,000

Allowance for doubtful accounts credit balance = $2,900

Balance needed in the 'Allowance for doubtful accounts' = $467,000 × 2%

= $9,240

Credit balance in the allowance account = $2,900

Bad debts expense =  Balance needed in the 'Allowance for doubtful accounts' + Credit balance in the allowance account

= $9,340 + $2,900

= $12,240