Asked by Beatriz Sarai on May 10, 2024
Verified
Using the percentage-of-receivables basis the uncollectible accounts for the year is estimated to be $33000. If the balance for the Allowance for Doubtful Accounts is a $5000 credit before adjustment what is the amount of bad debt expense for the period?
A) $5000
B) $28000
C) $33000
D) $38000
Percentage-of-Receivables Basis
A method used to estimate the amount of bad debt expense by applying a fixed percentage to the total amount of accounts receivable.
Allowance for Doubtful Accounts
A contra-asset account used to estimate the portion of a company's receivables that may not be collectible.
Bad Debt Expense
An expense reported on the income statement, representing the amount of non-collectible accounts receivable during a period.
- Absorb the fundamentals and implementation strategies of the percentage-of-receivables approach and the direct write-off method for bad debt allowances.
- Familiarize oneself with the technique of amending the Allowance for Doubtful Accounts and evaluating the bad debt expense using several estimation procedures.
Verified Answer
Before adjustment, the balance for the Allowance for Doubtful Accounts is a $5000 credit. This means that $5000 has already been set aside for uncollectible accounts, leaving a balance of $28000 ($33000 - $5000).
To adjust the Allowance for Doubtful Accounts to its estimated amount of $33000, we need to increase the balance by $28000 ($33000 - $5000). This means that bad debt expense for the period is $28000.
Therefore, the best choice is B.
Learning Objectives
- Absorb the fundamentals and implementation strategies of the percentage-of-receivables approach and the direct write-off method for bad debt allowances.
- Familiarize oneself with the technique of amending the Allowance for Doubtful Accounts and evaluating the bad debt expense using several estimation procedures.
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