The following information is from the 2015 records of Armand Camera Shop:
- Bad debts expense is estimated by the aging-of-receivables method.Management estimates that $5,000 of accounts receivable will be uncollectible.Calculate the amount of bad debts expense for 2015.

Question

The following information is from the 2015 records of Armand Camera Shop: 
- Bad debts expense is estimated by the aging-of-receivables method.Management estimates that $5,000 of accounts receivable will be uncollectible.Calculate the amount of bad debts expense for 2015.

Quizplus · Accepted Answer

The estimated amount of uncollectible accounts receivable is $5,000. Using the aging-of-receivables method, the total accounts receivable balance at the end of the year is multiplied by the estimated percentage of uncollectible accounts. Let's assume that based on the aging of receivables schedule Armand Camera Shop determines that 5% of accounts receivable over 90 days past due are not collectible. If the total accounts receivable balance at the end of the year is $100,000 and the balance of accounts over 90 days past due is $20,000, then the bad debts expense for the year would be $1,000 ($20,000 x 5%). Adding the estimated $5,000 of uncollectible accounts receivable gives a total bad debts expense of $6,000. Therefore, option B ($6,500) is the best choice as it is the closest to the calculated amount.

The Following Information Is from the 2015 Records of Armand