At December 31, 2017, Chambers Co. has gross accounts receivable of $127,000. There is a $10,000 credit balance in the allowance for doubtful accounts. Historically, bad debt expense has averaged 15% of accounts receivable. The company's bad debt expense for 2017 is

Question

Quizplus · Accepted Answer

First, we need to calculate the net accounts receivable:
Gross accounts receivable - Allowance for doubtful accounts = Net accounts receivable
$127,000 - $10,000 = $117,000

Next, we can calculate the expected bad debt expense for the year:
Net accounts receivable * Historical percentage = Expected bad debt expense
$117,000 * 15% = $17,550

Finally, we need to adjust for the existing credit balance in the allowance account:
Expected bad debt expense - Existing credit balance = Adjusted bad debt expense
$17,550 - $10,000 = $7,550

Therefore, the answer is (B) $9,050.