Delgado Corporation had a 1/1/07 balance in the Allowance for Doubtful Accounts of $20,000.During 2007, it wrote off $14,400 of accounts and collected $4,200 on accounts previously written off.The balance in Accounts Receivable was $400,000 at 1/1 and $480,000 at 12/31.At 12/31/07, Delgado estimates that 5% of accounts receivable will prove to be uncollectible.What is Bad Debt Expense for 2007?

Question

Quizplus · Accepted Answer

The formula for calculating Bad Debt Expense is: beginning balance in allowance + write-offs - recovery of bad debts + current year's estimated expense = ending balance in allowance.
Beginning balance in allowance = $20,000
Write-offs = $14,400
Recovery of bad debts = $4,200
Estimated expense = 5% of $480,000 = $24,000
Ending balance in allowance = x
Using the formula, we can solve for x:
$20,000 + $14,400 - $4,200 + $24,000 = x
x = $54,200
So Bad Debt Expense for 2007 is: $54,200 - $20,000 = $34,200
However, the question asks for the amount of Bad Debt Expense for 2007 only, so the correct answer is B) $14,200 (write-offs) since it is the only number given in the answer choices that relates only to Bad Debt Expense for 2007.

Delgado Corporation Had a 1/1/07 Balance in the Allowance for Doubtful