Question

Using the aging-of-accounts-receivable method to estimate uncollectible receivables, CMU Corporation estimates that $3,750 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a credit balance of $600. Bad debt expense to be reported on the income statement is:

a) $3,750
b) $600
c) $3,150
d) $4,350

Answer 1

The bad debt expense reported on the income statement is the estimated uncollectible receivables minus any existing balance in the Allowance for Uncollectible Accounts, totaling $3,150 for CMU Corporation.

Step-by-step explanation:

When using the aging-of-accounts-receivable method for estimating uncollectible receivables, the bad debt expense recorded on the income statement is based on the estimated uncollectible amount adjusted for any existing balance in the Allowance for Uncollectible Accounts. CMU Corporation estimates that $3,750 of its accounts receivable will be uncollectible. With a prior credit balance of $600 in the Allowance for Uncollectible Accounts, the bad debt expense will be the difference between the estimated uncollectible receivables and the existing allowance balance.

The calculation is as follows: $3,750 (estimated uncollectible) - $600 (existing allowance balance) = $3,150.

Thus, the bad debt expense to be reported is $3,150, which is option (c).