Question

Wilton, Inc. had net sales in 2017 of \(1,400,000. At December 31, 2017, before adjusting entries, the balances in selected accounts were Accounts Receivable \)250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its receivables will prove to be uncollectible, prepare the December 31, 2017, journal entry to record bad debt expense.

Short answer

Bad debt expenses equal $17,600 because $2,400 is adjusted against the credit balance of allowance for doubtful accounts.

Step-by-step solution

Definition of Net Sales

Net sales can be defined as the figure calculated from gross sales after adjusting for all discounts and returns.

Journal entry to record the bad debt expenses

Date	Accounts and explanation	Debit $	Credit $
31 Dec 2017	Bad Debt expenses	$17,600
	Allowance for doubtful accounts		$17,600

Working notes:

$$\begin{gathered} \mathrm{Allowance}\mathrm{for}\mathrm{doubtful}\mathrm{accounts}=\left(\mathrm{Account}\mathrm{receivables}\times \mathrm{Estimated}\mathrm{bed}\mathrm{debt}\mathrm{percentage}\right)-\mathrm{Credit}\mathrm{balance}\mathrm{for}\mathrm{allowance}\mathrm{for}\mathrm{doubtful}\mathrm{accounts} \\ =\left(\$250,000\times 8\%\right)-2400 \\ =\$17,600 \end{gathered}$$