Rimrock, Inc. used the aging of accounts receivable method. At December 31, management determined that the net realizable value of accounts receivable was $608,000. The balance in the Accounts Receivable asset account was $768,000 and the unadjusted credit balance in the Allowance for Doubtful Accounts contra-asset account was $32,000. "Unadjusted" in this case means Bad Debt Expense has NOT yet been recorded. Using this information, what will be the amount of Bad Debt Expense for the year?

The bad debt expense for the year is $128,000.

Explanation: Rimrock, Inc. adopts the aging of accounts receivable method. The net realizable value of the receivable is less than the carrying amount. In this case, it is $608,000 while the accounts receivable in the account was $768,000. This means the accounts receivable has suffered some impairment to the tune of  $160,000 ($768,000 - $608,000) due to aging of collections. On a normal day, if there is nil balance in allowance for doubtful accounts, the same amount would be recorded as the bad debt expense for the year. Since we have a balance of $32,000 in that account, the bad debt expense for the year would therefore be $128,000 ($160,000 - $32,000), bringing the total balance in allowance for doubtful accounts to $160,000. Remember this is a contra account to the account receivable, that is, the new carrying amount of accounts receivable would be $608,000 ($768,000 - $160,000).

the answer is: guns or butter

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-lavira : )

correct, but each time you dont pay the price of the penalty can increase.