Dinky Inc. determines uncollectible accounts expense using the aging of the rece

Question

Dinky Inc. determines uncollectible accounts expense using the aging of the receivables method. On December 31, 2006 net receivables were $325,000 after adjusting entries. Additional information is as follows: Allowance for uncollectible accounts—1/1/06 $ 30,000 Uncollectible accounts written off during 2006 18,000 Uncollectible accounts recovered during 2006 2,000 Accounts receivable at 12/31/06 350,000 For 2006, what was Dinky's Inc.’s bad debt expense? $5,000 $11,000 $15,000 none of the above

Explanation / Answer

We are given that at end company has Accounts receivables = 350000

whereas Net receivables = 325000

Net receivables is calculated as = Gross Receivables - Allowance for Bad debt

arranging above equation , we observe that

Gross Receivables - Net Receivables = Allowance for bad debt at end

= 350000 - 325000 , = 25000

Now BAd debt expense can be calculated by re arranging data given in question as

Allownace for Bad debt ( 31/12/2006) = 25000

Add: Uncollectibles written off = 18000

Less: Accounts recovered during the period = 2000

Less: Allownace for Bad debt ( 01/01/2006) = 30000

Bad debt expense recorded during the year = 25000+18000 - 2000 - 30000

= 11000

So , Bad debt expensed during year = 11000

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