Question
In: Accounting
As of December 31, 2020, Gill Co. reported accounts receivable of $226,000 and an allowance for...
As of December 31, 2020, Gill Co. reported accounts receivable of $226,000 and an allowance for uncollectible accounts of $8,600. During 2021, accounts receivable increased by $22,500, (that change includes $7,700 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 1% of accounts receivable. Bad debt expense for 2021 would be:
Multiple Choice
·
$1,585.
·
$7,700.
·
$2,485.
·
None of these answer choices are correct.
Solutions
Expert Solution
| Particulars | $ |
| Accounts receivable opening balance | $ 226,000 |
| Add Net change (includes new A/R - Bad debts writte off) | $ 22,500 |
| Accounts receivable closing balance | $ 248,500 |
| Should be closing balance of Allowance for uncollectible accounts opening balance ($248,500 x 1%) | $ 2,485 |
| Add Bad debts written off | $ 7,700 |
| Allowance for uncollectible accounts opening balance | $ (8,600) |
| Allowance for uncollectible to be provided in 2021 i.e. Bad debts expense to be recorded ($2,485 + $7,700 - $8,600) | $ 1,585 |
Hence, Option A is correct.
For any clarification, please comment. Kindly Up Vote!
ekkarill92 answered 1 year agoRelated Solutions
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