Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year?

Question

Quizplus · Accepted Answer

First, calculate the estimated amount of uncollectible accounts: 
$6.5 million x 8% = $520,000

Next, subtract the credit balance in the allowance for doubtful accounts: 
$520,000 - $12,000 = $508,000

Therefore, the amount of bad debt expense recognized for the year will be $508,000.