Question

Esquire Company offers credit terms to its customers. At the end of 2021, accounts receivable totaled $705,000. The allowance method is used to account for uncollectible accounts. The allowance for uncollectible accounts had a credit balance of $48,000 at the beginning of 2021 and $29,000 in receivables were written off during the year as uncollectible. Also, $2,800 in cash was received in December from a customer whose account previously had been written off. The company estimates bad debts by applying a percentage of 10% to accounts receivable at the end of the year. What amount should Esquire charge to bad debt expense at the end of 2021 under balance sheet approach (percentage of A/R)?

A)59,000

B)63,200

C)70,500

D)48,700

Answer 1

Answer -

Balance, beginning of year	$48000
Deduct : Receivables written off	$29000
	$19000
Add : Collection of receivable previously written off	$2800
Balance (before adjusting entry for 2021 bad debts)	$21800
Required allowance (10% * $705000)	$70500
Bad debt expense ($70500 - $21800)	$48700

So,

To record bad debt expense for the year:

Bad debt expense $48700 (6.90% of Accounts receivable)