Question

Star World Inc. generated $500,000 in credit sales. The company uses the percentage of sales method to estimate uncollectible accounts. The ending accounts receivable balance is $150,000. It was determined that 9% of credit sales will be uncollectible. Allowance for doubtful accounts holds a current balance of $10,000. The entry to record the above expense will include:

Select one:

a. a debit to Allowance for Doubtful Accounts for $45,000

b. a debit to Bad Debt Expense for $10,000

c. a debit to Bad Debt Expense for $45,000

d. a credit to Bad Debt Expense for $45,000

e. a credit to Allowance for Doubtful Accounts for $45,000

Clear my choice

Answer 1

Credit sales = $500,000

Percentage uncollectible = 9% of credit sales

Bad debt expense =Credit sales x Percentage uncollectible

= 500,000 x 9%

= $45,000

The entry to record bad debt expense will be as under:

General Journal	Debit	Credit
Bad debt expense	$45,000
Allowance for doubtful accounts		$45,000
( To record bad debt expense)

Correct option is c and e.

c. a debit to Bad Debt Expense for $45,000

e. a credit to Allowance for Doubtful Accounts for $45,000