California Cannery began 2008 with a debit balance in Accounts Receivable of $15

Question

California Cannery began 2008 with a debit balance in Accounts Receivable of $150,000 and a credit balance in Allowance for Doubtful Accounts of $7,500. During the year, California Cannery sold $1,300,000 of product and collected $1,350,000 from customers. In addition, $4,000 of the Accounts Receivable balance was written off as uncollectible during the year. Management uses the allowance method to account for bad debts and believes that ultimately that 5% of the year-end balance in Accounts Receivable will not be collected. How much Bad Debt Expense will be recorded in 2008?

Beginning Balance $ 150,000
Credit Balance $ 7,500
Sales $ 1,300,000
Collections $ 1,350,000
Write-offs $ 4,000

Explanation / Answer

Balance in A/R (150,000 +1,300,000-1,350,000-4,000)= 96,000 96,000*.05=4,800. Balance in ADA (7,500- 4,000)=3,000 4,800-3,000= 1,800 needs to be charged to bad debt expense and credited to allowance for doubtful accounts.

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