Question

Flyer Company has provided the following information prior to any year-end bad debt adjustment:Cash sales, $167,000Credit sales, $467,000Selling and administrative expenses, $127,000Sales returns and allowances, $47,000Gross profit, $507,000Accounts receivable, $275,000Sales discounts, $31,000Allowance for doubtful accounts credit balance, $2,900Flyer estimates bad debt expense assuming that 2% of credit sales have historically been uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded?a) $12,240.b) $9,340.c) $9,780.d) $6,440.

Answer 1

The updated balance in the allowance for doubtful accounts after recording the bad debt expense, based on 2% of credit sales, is $12,240.

Step-by-step explanation:

The balance in the allowance for doubtful accounts after the bad debt expense is recorded is calculated by first determining the bad debt expense and then adjusting the existing allowance balance. Flyer Company estimated that 2% of credit sales are uncollectible. Therefore, the bad debt expense is 2% of $467,000 in credit sales, which is $9,340. Since there is already a credit balance of $2,900 in the allowance for doubtful accounts, we add the new expense to the existing balance to find the updated amount.

Updated allowance for doubtful accounts = Existing balance + Bad debt expense = $2,900 + $9,340

After performing the calculation, the updated allowance for doubtful accounts is:

$12,240.