Question

In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,000. During the year, Dinty wrote off $32,000 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,200,000, and cash collections from credit customers totaled $1,950,000.
What bad debt expense would Dinty report in its first-year income statement?
A. $50,000.
B. $82,000.
C. $114,000.
D. Can't be determined from the given information
Bad debts expense - Write-offs = Change in Allowance balance.
So, Bad debts expense = Change in Allowance balance of $82,000 + Write-offs of $32,000 = $114,000.

Answer 1

Answer:

The correct answer is C. $114.000

Explanation:

Allowance for uncollectible accounts represents accounts receivable the company does not expect to collect but it could happen based in their policies and/or analysis. So they create a reserve. On the other hand when an accounts receivable is written off means that there is not chance to recover that amount and the company just stop waiting for the payments so there is an additional expense that needs to be recognized besides the allowance.