Australia. Inc. had a $140,000 beginning balance in Accounts Receivable and a $5,000 credit balance in the Allowance for Doubtful Accounts. During the year, credit sales were $800,000 and customers' accounts collected were $810,000. Also, $4,000 in worthless accounts were written off. An aging of the accounts indicates that 5% of the end-of-the-year Accounts Receivable balance is doubtful for collection. What amount of Bad Debts Expense should be provided at year-end?

(A) $6,300

(B) $7,300

(C) $7,600

(D) $5,300

Question

Business

Karson Oliver

11 June, 17:33

Australia. Inc. had a $140,000 beginning balance in Accounts Receivable and a $5,000 credit balance in the Allowance for Doubtful Accounts. During the year, credit sales were $800,000 and customers' accounts collected were $810,000. Also, $4,000 in worthless accounts were written off. An aging of the accounts indicates that 5% of the end-of-the-year Accounts Receivable balance is doubtful for collection. What amount of Bad Debts Expense should be provided at year-end?

(A) $6,300

(B) $7,300

(C) $7,600

(D) $5,300

+5

Answers (1)

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Potts · Answer 1

(D) $5,300

Explanation:

During the year, credit sales were $800,000 = > Accounts Receivable increased $800,000

Customers' accounts collected were $810,000=> Accounts Receivable decreased $810,000

The company wrote off $4,000 in worthless accounts = > Accounts Receivable decreased $4,000 and the Allowance for Doubtful Accounts decreased $4,000

At the end of the year, before adjusting, the balance of

Accounts Receivable = $140,000+$800,000-$810,000-$4,000 = $126,000

Allowance for Doubtful Accounts = $5,000-$4,000 = $1,000

Bad Debts were estimated: 5% x $126,000 = $6,300

Bad Debts Expense should be provided: $6,300-$1,000 = $5,300