Question

1. Ace Co. prepared an aging of its accounts receivable at December 31, 2018 and determined that the net realizable value of the receivables was $600,000. Additional information is available as follows:

Allowance for doubtful accounts at 1/1/18—credit balance               $ 68,000

Accounts written off as uncollectible during 2018                                    46,000

Accounts receivable at 12/31/18                                                             650,000

                                                                                                                                   

For the year ended December 31, 2018, Ace's bad debt expense would be

a.   $50,000.

b.   $46,000.

c.   $32,000.

d.   $18,000.

e.   None of the above

Answer 1

Answer

• Correct Answer= Option ‘e’ None of the above,
  because actual bad debt expense = $ 28,000
• Working
  >First calculate ending balance of allowance account:

A	Accounts receivables at 12/31/18	$650,000
B	Accounts receivables, net	$600,000
C = A - B	Allowance for Doubtful account -Ending balance	$50,000

>Now find bad debt expense

A	Allowance for Doubtful account -Ending balance	$50,000
B	Allowance for Doubtful account -Beginning balance	$68,000
C	Written off	$46,000
D = A - B + C	Bad Debt Expense	$28,000