Chapter 9, Problem 9.3MC

On its December 31, Year 2, balance sheet, Red Rock Candle Company reported accounts receivable of $855 000 net of an allowance for doubtful accounts of $45,000. On December 31, Year 3, Red Rock’s balance sheet showed gross accounts receivable of $922,000, and Red Rock’s income statement reported credit sales of $3,000,000. During the year, accounts receivable of $35,000 were written off and $18,000 were recovered Based on past experience, 5% of Red Rock’s ending accounts receivable are uncollectible. How much should Red Rock report as bad debt expense on its Year 3 income statement?

1. a. $18,100
2. b. $35,000
3. c. $46,100
4. d. $150,000