At the beginning of 2017, Elixir, Inc. has the following account balances: Accounts Receivable $42,000 (debit balance)
Allowance for Bad Debts $7,000 (credit balance)
Bad Debts Expense $0
During the year, credit sales amounted to $800,000. Cash collected on credit sales amounted to $770,000, and $18,000 has been written off. At the end of the year, the company adjusted for bad debts expense using the percent-of-sales method and applied a rate, based on past history, of 2.5%. The ending balance in the Allowance for Bad Debts is ________.

Question

Quizplus · Accepted Answer

The bad debts expense for the year is calculated as 2.5% of $800,000 (credit sales), which equals $20,000. The Allowance for Bad Debts account is adjusted by adding this expense and subtracting the $18,000 written off. Starting with a $7,000 credit balance, adding $20,000 gives $27,000, and subtracting $18,000 results in an ending balance of $9,000.

At the Beginning of 2017, Elixir, Inc