A company has a debit balance of $3,500 in the Allowance for Doubtful Accounts.It estimates that 2% of net credit sales of $1,500,000 will be uncollectible.The required journal entry to record bad debt expense should include a debit to:
A)Allowance for Doubtful Accounts for $30,000.
B)Allowance for Doubtful Accounts for $33,500.
C)Bad Debt Expense for $33,500.
D)Bad Debt Expense for $30,000.

Question

Quizplus · Accepted Answer

The estimated bad debt expense is calculated as 2% of net credit sales, which is $30,000. This amount should be recorded as an expense in the income statement and a corresponding increase in the allowance account for doubtful accounts. Since the company already has a debit balance of $3,500 in the Allowance for Doubtful Accounts, the required journal entry should be:

Debit Bad Debt Expense for $30,000
Credit Allowance for Doubtful Accounts for $30,000

Therefore, the correct choice is D.

A Company Has a Debit Balance of $3,500 in the Allowance