Based on this information, what is the bad debts expense for the year?
A. P247,000
B. P227,000
C. P157,000
D. P187,000
The following accounts were extracted from COLORADO Company's unadjusted trial balance at December 31, 2023:
| Account | Debit | Credit |
|-------------------------|-------------|-------------|
| Accounts receivable | P5,250,000 | |
| Allowance for bad debts | P42,000 | |
| Net credit sales | | P18,500,000 |
The Company estimates that 3.50% of the gross accounts receivable will become uncollectible. What is the bad debts expense for 2023?
A. P245,750
B. P647,550
C. P141,750
D. P225,750
Answer (2)
To find the bad debts expense for the year for COLORADO Company, we need to calculate the estimated uncollectible accounts using the given information. Let's break down the steps to solve this problem:
Identify the relevant amounts and percentage:
Accounts Receivable: P 5 , 250 , 000
Current Allowance for Bad Debts (credit balance): P 42 , 000
Estimated uncollectible percentage: 3.50%
Calculate the estimated amount of uncollectible accounts:
Multiply the total accounts receivable by the estimated uncollectible percentage: Estimated Uncollectible Accounts = P 5 , 250 , 000 × 0.035 = P 183 , 750
Determine the required adjustment to the allowance for bad debts:
Subtract the current credit balance of the allowance account from the estimated uncollectibles: Bad Debts Expense = P 183 , 750 − P 42 , 000 = P 141 , 750
Choose the correct multiple-choice option:
The correct answer is option c. P 141 , 750 .
The bad debts expense for 2023 shall therefore be P 141 , 750 , which accounts for the required adjustment to meet the estimated uncollectible accounts.
The bad debts expense for COLORADO Company for 2023 is P141,750, calculated by estimating uncollectibles from accounts receivable and adjusting the allowance for bad debts. The correct choice from the options provided is C. P141,750.
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