At the beginning of 2019, Patriots, Inc. has the following account balances: Accounts Receivable $45,000 (Debit)
Allowance for Bad Debts $8,000 (Credit)
Bad Debts Expense $0
During the year, credit sales amounted to $810,000. Cash collected on credit sales amounted to $770,000, and $18,000 has been written off. At the end of the year, the company adjusted for bad debts expense using the percent-of-sales method and applied a rate, based on past history, of 3.5%. The amount of bad debts expense for 2019 is ________.

Question

Quizplus · Accepted Answer

To determine the bad debts expense using the percent-of-sales method, we need to calculate the expected amount of uncollectible accounts. This can be calculated by multiplying the credit sales by the estimated percentage of uncollectible accounts based on past history.

Credit sales = $810,000
Estimated percentage of uncollectible accounts = 3.5%

Expected amount of uncollectible accounts = 810,000 x 3.5% = $28,350

Since the company wrote off $18,000 during the year, the adjusted balance in the Allowance for Bad Debts account at the end of the year would be $8,000 + $28,350 - $18,000 = $18,350.

Therefore, the amount of bad debts expense for 2019 would be $28,350 - $8,000 = $20,350.

At the Beginning of 2019, Patriots, Inc