Asked by Oscar Colon on Jul 05, 2024
Verified
Marx Company estimates bad debt expense using a percentage of credit sales (4%) .The company began its current year with an $8, 500 balance in the allowance account.During the current year, $10, 500 of accounts receivable were written off, and $1, 200 of previously written off accounts were collected.Credit sales for the year were $200, 000.The bad debt expense for the year was
A) $10, 500
B) $ 7, 200
C) $ 8, 000
D) $ 6, 000
Percentage of Credit Sales
An accounting method used to estimate bad debts expense by applying a fixed percentage to the total credit sales of a period.
Allowance Account
An accounting reserve established to adjust the carrying value of accounts receivable to their net realizable value, recognizing potential losses from uncollectible accounts.
Written Off Accounts
Accounts receivable that a company deems uncollectible and removes from its books.
- Acquire knowledge on estimating bad debt expense using historical links and its significance on financial accounts.
- Grasp the application of multiple methodologies for assessing bad debt and its impact on the reconciliation of revenues and expenses.
Verified Answer
OS
Oretha Smith-TarrJul 08, 2024
Final Answer :
C
Explanation :
To calculate bad debt expense for the year, we need to calculate the ending balance in the allowance account.
Beginning balance in allowance account = $8,500
Accounts written off during the year = $10,500
Previously written off accounts collected = ($1,200)
Ending balance in allowance account = $17,800
Credit sales for the year = $200,000
4% of credit sales = $8,000
To adjust the allowance account to the ending balance, we need to make a journal entry:
Bad debt expense $8,000
Allowance for doubtful accounts $8,000
Therefore, the bad debt expense for the year is $8,000.
Beginning balance in allowance account = $8,500
Accounts written off during the year = $10,500
Previously written off accounts collected = ($1,200)
Ending balance in allowance account = $17,800
Credit sales for the year = $200,000
4% of credit sales = $8,000
To adjust the allowance account to the ending balance, we need to make a journal entry:
Bad debt expense $8,000
Allowance for doubtful accounts $8,000
Therefore, the bad debt expense for the year is $8,000.
Learning Objectives
- Acquire knowledge on estimating bad debt expense using historical links and its significance on financial accounts.
- Grasp the application of multiple methodologies for assessing bad debt and its impact on the reconciliation of revenues and expenses.