Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year?

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Business

Brady

2 February, 09:52

Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year?

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Anabelle · Answer 1

The correct answer is $508,000.

Explanation:

According to the scenario, the given data are as follows:

Accounts receivable = $6.5 million

Credit balance in Allowance for doubtful accounts = $12,000

Uncollectible percentage = 8%

So, we can calculate the bad debt by using following formula:

Uncollectible amount = 6,500,000 * 8%

= $520,000

Total bad debt expense recognized = Uncollectible amount - Allowance for doubtful accounts

= $520,000 - $12,000

= $508,000