Computing Bad Debts Under the Allowance Method Based on Receivables

A company has a credit balance of $480 in its allowance for doubtful accounts. The amount of credit sales for the period is $64,000, and the balance in accounts receivable is $12,000. 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 $____

2. Allowance for doubtful accounts $_____

b. How would the answer to part a change (if at all) if the company had a debit balance of $480 in its allowance for doubtful accounts before any adjustment?

1. Bad Debt Expense $____

2. Allowance for doubtful accounts $_____