As of January 1, 2021, Barley Co. had a credit balance of $532,000 in its allowance for uncollectible accounts. Based on experience, 2% of Farley’s gross accounts receivable have been uncollectible. During 2021, Farley write off $662,000 of accounts receivable. Barley’s gross accounts receivable as December 31, 2021 is $18,600,000. How much bad debt expense should Barley record for 2021

The bad debt expense should Barley record for 2021 is $502,000.

Explanation:

To arrive at the bad debt expense for Barley, we simply need to calculate 2% of Farley’s gross accounts receivable have been uncollectible, as follows:

2% of  $18,600,000 = $372,000

Note that there was a write-off of $662,000 of accounts receivable, the following entries will apply with respect to the write-off:

Debit Allowance for doubtful accounts $662,000

Credit Accounts receivable $662,000

(To record the write-off during the year)

The impact of this write-off on allowance for uncollectible accounts is: $532,000 - $662,000 = $130,000 (debit)

In order to reinstate the allowance account to $372,000, we simply need to add $130,000 to arrive at bad debt expense of $502,000.

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