Emma's Clothes,Inc.has accounts receivable of $210,000.In the current economy,she has noticed an increase in uncollectible accounts.In 2016,her sales were $3,200,000 and in 2017,sales were $3,800,000.She has estimated in the past that 2% of sales would eventually be uncollectible.Emma believes that her losses were closer to 3% last year.What should be the bad debt expense for 2016 and 2017 in the comparative income statements for 2016 and 2017?

Question

Quizplus · Accepted Answer

To calculate the bad debt expense for 2016, we need to multiply the sales for 2016 by the estimated percentage of uncollectible accounts. Thus, 3,200,000 x 2% = $64,000. 
To calculate the bad debt expense for 2017, we need to multiply the sales for 2017 by the actual percentage of uncollectible accounts. Thus, 3,800,000 x 3% = $114,000. 
Therefore, the correct answer is C, where the bad debt expense for 2016 is $64,000 and for 2017 it is $146,000 (since Emma believes her losses were closer to 3% last year).