Question

bad debts Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $86,000 and $4800, respectively. During Year 2, Allegheny wrote off $9000 of Uncollectible Accounts. Using the percent of receivables method, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $7200. What amount will Allegheny report as bad debts Expense on its Year 2 income statement? $9000 $11,400 $2400 $7200

Answer 1

The answer is $11,40 Computation of bad debt expense for the vear 2 Ending balance in Allowance for Doubtful accounts for the year 2 $7,200 credit balance CSs Beginning balance in Allowance for Doubtful accounts for the year 2 Less: Amount of accounts receivable written off during Year 2 Balance in Allowance for Doubful accounts before the adjusting entry for bad debt expense Bad debt expense for the year 2 [$7,200 (-$4,200)-$7,200 +$4,200] $4,800 - $9,000 $4,200 >debit balanc $11.40 So, after making an adjusting entry to record bad debt expense of S11,400, the balance in Allowance for Doubtful accounts would come to $7,200