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10 January, 23:45

Saint John Industries uses the percentage of credit sales method to estimate Bad Debt Expense. The company reported net credit sales of $500,000 during the year. Saint John has experienced bad debt losses of 2% of credit sales in prior periods. At the beginning of the year, Saint John has a credit balance in its Allowance for Doubtful Accounts of $4,000. No write-offs or recoveries were recorded during the year. What amount of Bad Debt Expense should Saint John recognize for the year?

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  1. 10 January, 23:46
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    When we are estimating bad debts as a percentage of credit sales then bad debt expense to be recognized each year is calculated by the formula

    Total Credit Sales * Percentage of bad debts

    As per data given in the question the Total Credit Sales = $500,000 and Percentage of bad debts is 2%.

    Therefore Bad debt expenses to be recognized for the year by Saint John Industries would be

    $500,000 * 2%

    $10,000.

    The Journal Entry to record the above transaction is

    Bad Debt Expense $10,000

    Allowance for Doubtful Accounts $10,000
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