Brown Furniture Company decided to go after the younger market to create a newer customer base. In doing so, Ms. Brown offered a liberal credit policy and estimated she would have a 5% bad debt expense. In 2018, sales under this promotion were $600,000. Accordingly, she estimated a bad debt expense of $30,000. Her actual bad debt expenses were far less than expected, at about 3%, and this rate will be used for 2019. Her 2019 sales under the program are $860,000. How much bad debt expense should be reported on the comparative income statements based on this information?

Question

Quizplus · Accepted Answer

In 2018, the bad debt expense was estimated at 5% of $600,000, which is $30,000. For 2019, the actual bad debt rate of 3% is used on sales of $860,000, resulting in a bad debt expense of $25,800.

Brown Furniture Company Decided to Go After the Younger Market