25. Rosco uses the allowance method of accounting for bad debts. accounts receiv

Question

25. Rosco uses the allowance method of accounting for bad debts. accounts receivable, the accountant for Rosco estimated that $5,000 of the current $98,000 of accounts receivable would be uncollectible. The allowance for doubtful accounts had a $400 debit balance at year- end prior to adjustment. The amount of bad debt expense that should appear in Rosco's income statement for the year is Upon completing an aging analysis of A. $5,000 B. $5,400 C. $4,600. D. $400 2 E. Zero osco uses the allowance method of accounting for bad debts. The allowance for doubtful accounts had a $400 debit balance at year-end prior to adjustment. T debt on a % of credit sales and us he accountant for Rosco bases the estimate for bad ing this method proiected that S5400 of the current year credit sales would be uncollectible. The amount of bad debt expense that should appear in Rosco's income stat TYor the year is A. $5,000. B. $5,400. C. $4,600 D. $5,800 E. Zero

Explanation / Answer

Allowance for doubt full debt is a contra asset account, it is recorded on the asset side on the balance sheet, and however it is not an asset for the company.

If it has debit balance it will be added to the bad debt expense, and if this account has credit balance sheet it will be deducted from the debt expense.

Total uncollectible amount that management has estimated is 5000, and allowance for doubtful debt has 400 debit balance, so total bad debt expense will be = (5000 + 400 = 5400)

So the correct option is B.

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In the second question, Allowance for doubt full debt account has 500 Dr balance so it will be added to the uncollectible amount, so total bad debt expense that will be transferred to the income statement is 5800.

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