Ace Computing Company On January 1,2012,the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $40,000 and $1,500 respectively.During the year,the company reported $80,000 of credit sales.There were $500 of receivables written off as uncollected in 2012.Cash collections of receivables amounted to $78,200.The company estimates that it will be unable to collect 4% of the year-end accounts receivable balance.
-Refer to the Ace Computing Company.The amount of bad debts expense recognized in the 2012 income statement will be:

Question

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The bad debts expense is calculated as the estimated uncollectible percentage of the ending accounts receivable balance. Ending accounts receivable is $41,300 ($40,000 + $80,000 - $78,200 - $500). 4% of $41,300 is $1,652. The allowance account needs to be adjusted to this amount. The beginning balance was $1,500, and $500 was written off, leaving $1,000. Therefore, the bad debts expense is $652 ($1,652 - $1,000).

Ace Computing Company on January 1,2012,the Accounts Receivable and the Allowance