XYZ Corp. uses the percentage of credit sales method in determining its bad debt expense. The following information comes from the accounting records of XYZ Corp.:
| Cash sales | $260,000 |
| Credit sales | 740,000 |
| Total sales | 1,000,000 |
| Credit balance in the Allowance for Doubtful Accounts | 8,000 |
| Bad debt loss rate | 3% |
What is the estimate of bad debt expense?
a) $22,200
b) $22,000
c) $30,200
d) $30,000
Working Notes for the above answer is as follow
We have been provided that
XYZ Corp. uses the percentage of credit sales method in determining its bad debt expense.
So bad deb and credit sale are
| Credit sales | 740,000 |
| Bad debt loss rate | 3% |
Now we will calculate bad debt expenses as follow
=740,000 * 3%
=$22,200
estimate of bad debt expense = $ 22,200
