Based on the following information for calendar 2021: $$\begin{array} { | l | r | }
\hline \text { Accounts receivable, January 1 } & \$ 125,000 \
\hline \text { Credit sales during the year } & 1,400,000 \
\hline \text { Allowance for doubtful accounts, January 1 } & 15,000 \
\hline \text { Cash collected on accounts receivable during the year } & 1,350,000 \
\hline \text { Uncollectible accounts written off during the year } & 8,000 \
\hline
\end{array}$$ If bad debts expense is estimated at 1.5% of credit sales, what is the balance in the allowance for doubtful accounts at year end?

Question

Based on the following information for calendar 2021: $$\begin{array} { | l | r | } 
\hline \text { Accounts receivable, January 1 } & \$ 125,000 \
\hline \text { Credit sales during the year } & 1,400,000 \
\hline \text { Allowance for doubtful accounts, January 1 } & 15,000 \
\hline \text { Cash collected on accounts receivable during the year } & 1,350,000 \
\hline \text { Uncollectible accounts written off during the year } & 8,000 \
\hline
\end{array}$$ If bad debts expense is estimated at 1.5% of credit sales, what is the balance in the allowance for doubtful accounts at year end?

Quizplus · Accepted Answer

The bad debts expense for the year can be calculated using the given information:

Bad debts expense = 1.5% x $1,400,000 = $21,000

To determine the year-end balance in the allowance for doubtful accounts, we need to consider the beginning balance, the bad debts expense for the year, and any write-offs or recoveries during the year:

Allowance for doubtful accounts, Jan 1: $15,000 
Add: Bad debts expense for the year: $21,000 
Less: Uncollectible accounts written off during the year: $8,000 
Balance in allowance for doubtful accounts at year-end: $28,000

Therefore, the correct answer is (C) $28,000.

Based on the Following Information for Calendar 2021 If Bad Debts Expense Is Estimated at 1