Question

As of December 31, 2020, Gill Co. reported accounts receivable of $216,000 and an allowance for uncollectible accounts of $8,400. During 2021, accounts receivable increased by $22,000 (that change includes $7,800 of bad debts that were written off). An analysis of Gill Co.'s December 31, 2021, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2021 would be

Answer 1

$6,540

Step-by-step explanation:

Accounts receivable at 12/31/2022:

= Accounts receivable at 12/31/2021 + Increase

= $216,000 + $22,000

= $238,000

Uncollectible accounts receivable:

= 3% of Accounts receivable at 12/31/2022

= 0.03 × $238,000

= $7,140

Allowance = Allowance at 12/31/2021 - Writes Off

= $8,400 - $7,800

= $600

Therefore,

Bad debt expense for 2021 would be:

= Uncollectible accounts receivable - Allowance

= $7,140 - $600

= $6,540