Question

Information on Ivanhoe Company for 2021 follows:

Total credit sales		$970,000
Accounts receivable at December 31		38,800
Uncollectible accounts written off		13,300
Amount collected on accounts previously written off (after write off but before year end)		3,100

a.)Assume that Ivanhoe Company decides to estimate its uncollectible accounts using the allowance method and estimates its bad debt expense at 2.70% of credit sales. What amount of bad debt expense will Ivanhoe Company record if Allowance for Doubtful Accounts had an opening balance of $14,500 on January 1, 2021?

Answer 1

Total credit sale = $970,000

Bad debt expense = 2.70% of credit sales

Accounts receivable at December 31 = $38,800

Uncollectible accounts written off = $13,300

Bad debt expense = Total credit sale x 2.70%

= 970,000 x 2.70%

= $26,190

Hence, company will record a bad debt expense of $26,190

When bad debt expense is calculated on the basis of credit sales, existing balance in allowance for doubtful accounts is not considered to calculate bad debt expense

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