Kelton Inc. reported net credit sales of $490,000 for the current year. The unadjusted credit balance in its Allowance for Doubtful Accounts is $975. The company has experienced bad debt losses of 2% of credit sales in prior periods. Using the percentage of credit sales method, what amount should the company record as an estimate of Bad Debt Expense?

Question

Charles Hoover

Business

16 June, 00:41

Kelton Inc. reported net credit sales of $490,000 for the current year. The unadjusted credit balance in its Allowance for Doubtful Accounts is $975. The company has experienced bad debt losses of 2% of credit sales in prior periods. Using the percentage of credit sales method, what amount should the company record as an estimate of Bad Debt Expense?

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Jaylon Lloyd · Answer 1

Answer: Kelton Inc. should record $8,825 as an estimate of bad debt expense.

Explanation: The company adopts percentage of credit sales method. So 2% of $490,000 is $9,800. Remember, there was an unadjusted credit balance in allowance for doubtful accounts to the tune of $975, so what needs to be adjusted for would be the difference between $9,800 and $975, which is $8,825. The following would therefore be the journal entries to be recorded:

Debit Bad debt expense $8,825

Credit Allowance for doubtful accounts $8,825