Question

The allowance for doubtful accounts currently has a debit balance of $200. The company's management estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are $115,000. What will be the amount of bad debt expense reported on the income statement?

Answer 1

Answer:

Bad debt expense (w/o allowance) = $2,875

Bad debt expense ( with allowance) = $2,675.

Explanation:

According to the scenario, the given data are as follows:

Net credit sales = $115,000

Uncollectible percentage = 2.5%

So, we can calculate the bad debt expense without Allowance for doubtful accounts by using following method:

Bad debt expense ( W/o allowance) = $115,000 × 2.5%

= $2,875

After Allowance for doubtful expense

Bad debt expense = $2,875 - $200

= $2,675