Question

LMNOP Company's aging schedule of its accounts receivable is provided below:

days outstanding	$ outstanding	probability of default
0-40 days	$1,200,000	1.5%
41-70 days	$800,000	5%
71-100 days	$100,000	10%

LMNOP accounts for bad debts using the allowance method. During the year, LMNOP wrote off $10,000 for accounts deemed uncollectible. If LMNOP's beginning balance in allowance for bad debts is $8,000, how much bad debt expense should LMNOP recognize for the fiscal year?

Select one:

a. $582,000

b. $68,000

c. $70,000

d. $60,000

e. $10,000

Answer 1

Days outstanding	$ Outstanding (a)	Probability of default (b)	Amount Uncollectible
0-40 days	$            1,200,000	1.5%	$        18,000
41-70 days	$                800,000	5%	$        40,000
71-100 days	$                100,000	10%	$        10,000
Total			$        68,000

Ending allowance for bad debts account balance	$                  68,000
(-) Beginning allowance for bad debts account balance	$                     8,000
(+) Account wrote off	$                  10,000
Bad debts expense	$                  70,000	Option c