Computing Bad Debts Under the Allowance Method Based on Receivables

A company has a credit balance of $120 in its allowance for doubtful accounts. The amount of credit sales for the period is $16,000, and the balance in accounts receivable is $3,000. Assume that the expected credit losses are estimated to be 9% of accounts receivable.

a. What is (1) bad debt expense for the year and (2) the ending balance in the allowance for doubtful accounts?

1.	Bad debt expense	Answer
2.	Allowance for doubtful accounts	Answer

b. How would the answer to part a change (if at all) if the company had a debit balance of $120 in its allowance for doubtful accounts before any adjustment?

1.	Bad debt expense	Answer
2.	Allowance for doubtful accounts	Answer