Maine Corporation's unadjusted trial balance includes the following balances (assume normal balances): $\begin{array}{lr}
\text { Accounts Receivable } & \$ 850,000 \
\text { Allowance for Doubtful Accounts } & 18,000
\end{array}$
Bad debts are estimated to be 5% of outstanding receivables. What amount of bad debt expense will the company record?

Question

Maine Corporation's unadjusted trial balance includes the following balances (assume normal balances): $\begin{array}{lr}
\text { Accounts Receivable } & \$ 850,000 \
\text { Allowance for Doubtful Accounts } & 18,000
\end{array}$
 Bad debts are estimated to be 5% of outstanding receivables. What amount of bad debt expense will the company record?

Quizplus · Accepted Answer

The bad debt expense is calculated as 5% of the outstanding receivables ($850,000), which is $42,500. Since the Allowance for Doubtful Accounts already has a balance of $18,000, the additional amount needed to bring the allowance to the correct level is $42,500 - $18,000 = $24,500.