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Ierofanga [76]
3 years ago
15

Lani Co. uses the allowance method to account for bad debts. At the end of the year, their unadjusted trial balance shows an acc

ounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:
A. $3,600
B. $4,000
C. $11,600
D. $12,400
E. $12,000
F. $4,400
Business
1 answer:
Vlada [557]3 years ago
3 0

Answer:

D. $12,400

Explanation:

Use the following formula to calculate the Bad debt expense for the period

Bad debt expesne = Debit balance of Allowance account + Allowance for the period

Where

Debit balance of Allowance account = $400

Allowance for the period = Account receivables x percentage of allowance = $1,200,000 x 1% = $12,000

Placing values in the formula

Bad debt expesne = $400 + $12,000

Bad debt expesne = $12,400

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Answer and Explanation:

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D0             0            0            1                         0

D1              0            0            0.89286                 0

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