At the beginning of 2019,Patriots Company has the following account balances: Accounts Receivable $40,000 (Debit)
Allowance for Bad Debts $7000 (Credit)
Bad Debts Expense $0
During the year,credit sales amounted to $810,000.Cash collected on credit sales amounted to $790,000,and $17,000 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 2.5%.The amount of bad debts expense for 2019 is ________.
A) $20,250
B) $41,000
C) $17,000
D) $10,250

Question

Quizplus · Accepted Answer

The company had a beginning balance of $40,000 in accounts receivable and credit sales of $810,000 during the year, which gives a total of $850,000 in accounts receivable. Cash collected on credit sales was $790,000, so the remaining balance in accounts receivable is $60,000 (850,000 - 790,000).

$17,000 was written off during the year, so the ending balance in accounts receivable is $43,000 (60,000 - 17,000).

To calculate the amount of bad debts expense, we use the percent-of-sales method with a rate of 2.5%:

Bad Debts Expense = Credit Sales x Bad Debts Rate
Bad Debts Expense = $810,000 x 2.5%
Bad Debts Expense = $20,250

Therefore, the answer is A) $20,250.

At the Beginning of 2019,Patriots Company Has the Following Account