Monkey, Inc. had a $420,000 beginning balance in Accounts Receivable and a $15,000 credit balance in the Allowance for Doubtful Accounts. During the year, credit sales were $2,400,000 and customers' accounts collected were $2,430,000. Also, $12,000 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 = $420,000 + $2,400,000 - $2,430,000 - $12,000 = $378,000
Allowance for Doubtful Accounts balance = $378,000 x 5% = $18,900
Year-end Allowance for Doubtful Accounts = $15,000 - $12,000 = $3,000
Bad Debt Expense = $18,900 - $3,000 = $15,900