On January 1,2017,Accounts Receivable and Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550,respectively.During the year,the company reported $70,000 of credit sales.There were $400 of receivables written off as uncollectible in 2017.Cash collections of receivables amounted to $74,700.The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance.
The amount of bad debts expense recognized in the 2017 income statement will be:
A)$545.
B)$595.
C)$745.
D)$795.

Question

On January 1,2017,Accounts Receivable and Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550,respectively.During the year,the company reported $70,000 of credit sales.There were $400 of receivables written off as uncollectible in 2017.Cash collections of receivables amounted to $74,700.The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. ​
The amount of bad debts expense recognized in the 2017 income statement will be:
A)$545.
B)$595.
C)$745.
D)$795.

Quizplus · Accepted Answer

To find the bad debts expense, first calculate the ending accounts receivable balance: $20,000 (beginning balance) + $70,000 (credit sales) - $74,700 (collections) - $400 (write-offs) = $14,900. The estimated uncollectible amount is 5% of $14,900, which is $745. The allowance account needs to be adjusted to this amount. The beginning allowance was $550, and $400 was written off, leaving $150. Therefore, the bad debts expense is $745 - $150 = $595.