Smithson Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of $10,000. During 2010, it wrote off $7,200 of accounts and collected $2,100 on accounts previously written off. The balance in Accounts Receivable was $200,000 at 1/1 and $240,000 at 12/31. At 12/31/10, Smithson estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2010? A) $2,000 B) $7,100 C) $9,200 D) $12,000.

Question

Smithson Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of $10,000. During 2010, it wrote off $7,200 of accounts and collected $2,100 on accounts previously written off. The balance in Accounts Receivable was $200,000 at 1/1 and $240,000 at 12/31. At 12/31/10, Smithson estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for 2010? A) $2,000 B) $7,100 C) $9,200 D) $12,000.

Answer 1

To answer this question, we need to calculate the bad debt expense for 2010. Bad debt expense represents the amount of accounts receivable that Smithson Corporation estimates will not be collected.

First, we need to determine the amount of accounts written off during 2010. The question states that $7,200 of accounts were written off during the year.

Next, we need to determine the amount collected on accounts previously written off. The question states that $2,100 was collected on accounts previously written off.

To calculate the net accounts written off, we subtract the amount collected on accounts previously written off from the total accounts written off:
Net accounts written off = Total accounts written off - Amount collected on accounts previously written off
Net accounts written off = $7,200 - $2,100 = $5,100

Now, we need to calculate the year-end balance in the Allowance for Doubtful Accounts. The question tells us that the beginning balance in the Allowance for Doubtful Accounts on 1/1/10 was $10,000. Therefore, we need to adjust this balance to account for the net accounts written off during the year:
Adjusted balance in the Allowance for Doubtful Accounts = Beginning balance + Net accounts written off
Adjusted balance in the Allowance for Doubtful Accounts = $10,000 + $5,100 = $15,100

Finally, we need to calculate the bad debt expense for 2010, which represents the amount of accounts receivable Smithson Corporation estimates will be uncollectible. The question states that Smithson estimates 5% of accounts receivable will be uncollectible. Therefore, we need to calculate 5% of the accounts receivable at the end of the year.
Bad debt expense = Accounts receivable at 12/31 * Estimated uncollectible percentage
Bad debt expense = $240,000 * 5% = $12,000

Therefore, the bad debt expense for 2010 is $12,000, which means the correct answer is D) $12,000.

3434

To answer this question, we need to calculate the bad debt expense for 2010. Bad debt expense represents the amount of accounts receivable that Smithson Corporation estimates will not be collected.