ExpertMedium1 markMultiple Choice
CPA · Question 19 · Area II: Balance Sheet Accounts
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?
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?
Answer options:
A.
$23,000
B.
$25,000
C.
$2,000
D.
$27,000
How to approach this question
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).
Full Answer
D.$27,000✓ Correct
D
Target Balance (Credit) = $25,000.<br/>Current Balance (Debit) = $2,000.<br/>Adjustment = Target - Current = $25,000 - (-$2,000) = $27,000.<br/>Journal Entry: Debit Credit Loss Expense $27,000; Credit Allowance for Credit Losses $27,000.
Common mistakes
Subtracting the debit balance instead of adding it. Ignoring the existing balance (calculating expense as the ending reserve).
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