At the beginning of 2019,Elliott Company has the following account balances: Accounts Receivable $ \$ 44,000 $ (debit balance)
Allowance for Bad Debts $ \$ 5000 $ (credit balance) Bad Debts Expense $0
During the year,credit sales amounted to $850,000.Cash collected on credit sales amounted to $790,000,and $16,000 has been written off.At the end of the year,the company adjusted for bad debts expense using the percent-of-sales method and applied a rate,based on past history,of 2.5%.The ending balance in the Allowance for Bad Debts is ________.
A) $5000
B) $5250
C) $8750
D) $10,250

Question

At the beginning of 2019,Elliott Company has the following account balances: Accounts Receivable $ \$ 44,000 $ (debit balance) 
Allowance for Bad Debts $ \$ 5000 $ (credit balance) Bad Debts Expense $0
During the year,credit sales amounted to $850,000.Cash collected on credit sales amounted to $790,000,and $16,000 has been written off.At the end of the year,the company adjusted for bad debts expense using the percent-of-sales method and applied a rate,based on past history,of 2.5%.The ending balance in the Allowance for Bad Debts is ________.
A) $5000
B) $5250
C) $8750
D) $10,250

Quizplus · Accepted Answer

The bad debts expense for the year is calculated as 2.5% of the credit sales ($850,000), which equals $21,250. The beginning balance in the Allowance for Bad Debts account was $5,000 (credit), and $16,000 was written off during the year, which would normally reduce the allowance. However, to find the ending balance in the Allowance for Bad Debts, we add the bad debts expense calculated for the year to the adjusted beginning balance (after write-offs). Since write-offs reduce the allowance, the effective beginning balance for calculation purposes becomes negative when considering the write-offs against the initial credit balance. However, for the purpose of calculating the ending balance, we focus on the addition of the current year's bad debts expense to the account. The calculation of the ending balance does not directly subtract write-offs but rather adjusts for them through the bad debts expense calculation. Therefore, the ending balance is the initial credit balance plus the bad debts expense for the year: $5,000 + $21,250 = $26,250. However, this calculation seems to misunderstand the adjustment process after write-offs and the calculation of bad debts expense based on sales, not the adjustment of the allowance account directly. The correct approach to find the ending balance involves directly applying the bad debts expense calculated from the sales to adjust the allowance account, considering write-offs have already impacted the receivables and the allowance account indirectly. The correct ending balance is thus directly influenced by the year's bad debts expense adjustment, reflecting the company's anticipation of future losses from the current year's sales, without double-counting the write-offs.

At the Beginning of 2019,Elliott Company Has the Following Account $44,000 \$ 44,000 $44,000

At the Beginning of 2019,Elliott Company Has the Following Account $\$ 44,000$