Question 1

At year-end, Credo Corp. has a balance in Accounts Receivable of $500,000. The Allowance for Credit Losses has a debit balance of $2,000 before adjustment. An aging analysis estimates that $25,000 of receivables are uncollectible. What is the Credit Loss Expense (Bad Debt Expense) for the year?

Accepted Answer

Draw a T-account for the Allowance. Start with the unadjusted balance (Debit $2k). Target ending balance is Credit $25k. Solve for the adjustment (Credit).

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Subtracting the debit balance instead of adding it. Ignoring the existing balance (calculating expense as the ending reserve).

At year-end, Credo Corp. has a balance in Accounts Receivable of $500,000. The Allowance for Credit Losses has a debit balance of $2,000 before adjustment. An aging analysis estimates that $25,000 of receivables are uncollectible. What is the Credit Loss Expense (Bad Debt Expense) for the year?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA FAR Practice Exam 3

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