Marvelos Inc. reported credit sales of $1,000,000 and cash sales of $100,000 for last year. The ending balance in accounts receivable was $1,500,000. Bad debt expense is estimated at 1% of ending accounts receivable. The allowance for doubtful accounts had a balance of $40,000 at the beginning of the year. Assuming there are no write-offs made during the year, what was the balance in the allowance for doubtful accounts at the end of the year?

Question

Quizplus · Accepted Answer

First, we need to calculate the amount of bad debt expense:

Bad debt expense = 1% of $1,500,000 = $15,000

Next, we need to calculate the balance in the allowance for doubtful accounts at the end of the year:

Balance in allowance for doubtful accounts = Beginning balance + Bad debt expense - Write-offs

Since there are no write-offs made during the year, the balance in allowance for doubtful accounts at the end of the year would be:

$40,000 + $15,000 = $55,000

Therefore, the correct answer is D) $55,000.