Wrangler Inc.uses the percentage of credit sales method to estimate Bad Debt Expense.At the end of the year,the company's unadjusted trial balance includes the following: Wrangler has experienced bad debt losses of 0.5% of credit sales in prior periods.What is the Bad Debt Expense to be recorded for the year?

Question

Wrangler Inc.uses the percentage of credit sales method to estimate Bad Debt Expense.At the end of the year,the company's unadjusted trial balance includes the following:  Wrangler has experienced bad debt losses of 0.5% of credit sales in prior periods.What is the Bad Debt Expense to be recorded for the year?

Quizplus · Accepted Answer

The percentage of credit sales method estimates Bad Debt Expense by multiplying the historical percentage of bad debt losses by the current period's credit sales.
Bad Debt Expense = Net credit sales × Bad debt loss rate
= $900,000 × 0.005 = $4,500