Esquire Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled...
Esquire Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $705,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $48,000 at the beginning of 2021 and $29,000 in receivables were written off during the year as uncollectible. Also, $2,800 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 10% to accounts receivable at the end of the year. What amount should Esquire charge to bad debt expense at the end of 2021 under balance sheet approach (percentage of A/R)?
A)59,000
B)63,200
C)70,500
D)48,700
Homework Answers
Answer -
| Balance, beginning of year | $48000 |
| Deduct : Receivables written off | $29000 |
| $19000 | |
| Add : Collection of receivable previously written off | $2800 |
| Balance (before adjusting entry for 2021 bad debts) | $21800 |
| Required allowance (10% * $705000) | $70500 |
| Bad debt expense ($70500 - $21800) | $48700 |
So,
To record bad debt expense for the year:
Bad debt expense $48700 (6.90% of Accounts receivable)
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