Splitter Corporation had total sales in the current year of $750,000 and credit sales of $650,000. The Accounts Receivable balance was $450,000 on the balance sheet date and the Allowance for Doubtful Accounts had a credit balance of $10,000 before adjusting entries. Bad debt expense is estimated as 2% of credit sales. The adjusting entry to record estimated bad debt expense would include a

Question

Quizplus · Accepted Answer

The estimated bad debt expense is calculated as 2% of credit sales, which is $13,000 ($650,000 x 2%). Since the Allowance for Doubtful Accounts already has a credit balance of $10,000, we need to increase the balance by an additional $3,000 to account for the estimated bad debt expense. Therefore, the adjusting entry would include a $13,000 debit to Bad Debt Expense and a $10,000 credit to Allowance for Doubtful Accounts, resulting in a new credit balance of $23,000 ($10,000 + $13,000). So, the correct answer is option B.

Splitter Corporation Had Total Sales in the Current Year of $750,000