The following information pertains to Lightning Inc. ,at the end of December: Lightning uses the aging method and estimates it will not collect 2% of accounts receivable not yet due,10% of receivables less than 30 days past due,and 40% of receivables greater than 30 days past due.The accounts receivable balance of $7,000 consists of $3,500 not yet due,$2,000 less than 30 days past due,and $1,500 greater than 30 days past due.What is the appropriate amount of Bad Debt Expense?
$$\begin{array} { | l | r | l | }
\hline \text { Credit Sales } & \$ 60,000 & \
\hline \text { Accounts Payable } & 10,000 & \
\hline \text { Accounts Receivable } & 7,000 & \
\hline \begin{array} { l }
\text { Allowance for Uncollectible } \
\text { Accounts }
\end{array} & \$ 400 & \text { credit } \
\hline \text { Cash Sales } & 20,000 & \
\hline
\end{array}$$

Question

The following information pertains to Lightning Inc. ,at the end of December: Lightning uses the aging method and estimates it will not collect 2% of accounts receivable not yet due,10% of receivables less than 30 days past due,and 40% of receivables greater than 30 days past due.The accounts receivable balance of $7,000 consists of $3,500 not yet due,$2,000 less than 30 days past due,and $1,500 greater than 30 days past due.What is the appropriate amount of Bad Debt Expense?
$$\begin{array} { | l | r | l | } 
\hline \text { Credit Sales } & \$ 60,000 & \
\hline \text { Accounts Payable } & 10,000 & \
\hline \text { Accounts Receivable } & 7,000 & \
\hline \begin{array} { l } 
\text { Allowance for Uncollectible } \
\text { Accounts }
\end{array} & \$ 400 & \text { credit } \
\hline \text { Cash Sales } & 20,000 & \
\hline
\end{array}$$

Quizplus · Accepted Answer

The correct answer is B. The appropriate amount of Bad Debt Expense is $470.The aging method is used to estimate the amount of uncollectible accounts receivable. The aging method takes into account the age of the accounts receivable and the likelihood of collection. The older the accounts receivable, the less likely they are to be collected.Lightning Inc. estimates that it will not collect 2% of accounts receivable not yet due, 10% of receivables less than 30 days past due, and 40% of receivables greater than 30 days past due. The accounts receivable balance of $7,000 consists of $3,500 not yet due, $2,000 less than 30 days past due, and $1,500 greater than 30 days past due.The amount of Bad Debt Expense is calculated as follows:Accounts receivable not yet due: $3,500 x 2% = $70Accounts receivable less than 30 days past due: $2,000 x 10% = $200Accounts receivable greater than 30 days past due: $1,500 x 40% = $600Total Bad Debt Expense: $70 + $200 + $600 = $470

The Following Information Pertains to Lightning Inc A)$400 B)$470

The Following Information Pertains to Lightning Inc A)$400
B)$470