Plasma Inc. ,has net credit sales of $500,000 during the year.Based on historical information,Plasma estimates that 2% of net credit sales result in bad debts.At the beginning of the year,Plasma has a credit balance in its Allowance for Doubtful Accounts of $4,000.What amount of bad debt expense should Plasma recognize for the year,assuming no specific customer accounts were written off?
A)$4,000.
B)$6,000.
C)$10,000.
D)$14,000.

Question

Quizplus · Accepted Answer

To determine the bad debt expense for the year, we need to calculate the ending balance for the Allowance for Doubtful Accounts. Since no specific customer accounts were written off, the ending balance in the allowance account should be based on an estimate of the total amount of bad debts that Plasma expects to incur for the year.

The estimated bad debt expense can be calculated as 2% of the net credit sales of $500,000, or $10,000. To get the ending balance for the allowance account, we need to subtract the beginning balance of $4,000 from the estimated bad debt expense of $10,000.

Therefore, the ending balance for the Allowance for Doubtful Accounts should be $6,000. This means that Plasma should recognize a bad debt expense of $6,000 for the year. The correct answer is therefore C) $10,000.