New Zealand, Inc. had a $140,000 beginning balance in Accounts Receivable and a $5,000 credit balance in the Allowance for Doubtful Accounts. During the year, credit sales were $800,000 and customers' accounts collected were $810,000. Also, $4,000 in worthless accounts were written off. An aging of the accounts indicates that 5% of the end-of-the-year Accounts Receivable balance is doubtful for collection.
What amount of Bad Debts Expense should be provided at year-end?

Question

Quizplus · Accepted Answer

Year-end A/R = $140,000 + $800,000 - $810,000 - $4,000 = $126,000
Allowance for Doubtful Accounts balance = $126,000 x 5% = $6,300
Year-end Allowance for Doubtful Accounts = $5,000 - $4,000 = $1,000
Bad Debt Expense = $6,300 - $1,000 = $5,300