Smithson Corporation had a 1\1\10 balance in the Allowance for Doubtful Accounts of $10,000.During 2010, it wrote off $7,200 of accounts and collected $2,100 on accounts previously written off.The balance in Accounts Receivable was $200,000 at 1\1 and $240,000 at 12\31.At 12\31\10, Smithson estimates that 5% of accounts receivable will prove to be uncollectible.What is Bad Debt Expense for 2010?

Question

Quizplus · Accepted Answer

To calculate the bad debt expense for 2010, we need to first calculate the ending balance of the allowance for doubtful accounts. 
Beginning balance (1/1/10): $10,000 
Accounts written off: $7,200 
Collections on previously written off accounts: $2,100 
Ending balance (12/31/10): $10,900 ($10,000 + $2,100 - $7,200)

Next, we need to calculate the required balance for the allowance for doubtful accounts based on the estimated percentage of uncollectible accounts. 
Ending balance of accounts receivable (12/31/10): $240,000 
5% estimated as uncollectible: $12,000 ($240,000 x 5%)

Finally, we need to calculate the amount of bad debt expense needed to adjust the allowance for doubtful accounts to the required balance. 
Bad debt expense = Required ending balance - Ending balance 
Bad debt expense = $1,100 ($12,000 - $10,900)

Therefore, the best answer choice is B.

Smithson Corporation Had a 1\1\10 Balance in the Allowance for Doubtful