Grayhawk Company reported net credit sales of $588,000 for the year ending December 31,2019.On January 1,2019,the Allowance for Doubtful Accounts had a credit balance of $14,400.During 2019,$24,000 of uncollectible accounts receivable were written off.Grayhawk has experienced bad debt losses of 3% of credit sales in prior periods.Using the percentage of credit sales method,what is the adjusted balance in the Allowance for Doubtful Accounts at December 31,2019?

Question

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
= $588,000 × 0.03 = $17,640
Ending balance in Allowance for Doubtful Accounts = Beginning credit balance in Allowance for Doubtful Accounts − Write-offs + Bad Debt Expense
= $14,400 − $24,000 + $17,640 = $8,040

Grayhawk Company Reported Net Credit Sales of $588,000 for the Year