Marshall Company prepared an aging of its accounts receivable at December 31, year 2, and determined that the net realizable value of the receivables at that date is $50,000. Additional information is available as follows:

 Marshall Company prepared an aging of its accounts receivable at December 31, year 2, and determined that the net realizable value of the receivables at that date is $50,000.  Additional information is available as follows:

Accounts receivable at December 31, year 1    $48,000
Accounts receivable at December 31, year 2    54,000
Allowance for doubtful accounts at December 31, year 1—credit balance    6,000
Accounts written off as uncollectible during year 2    5,000


Marshall’s bad debt expense for the year ended December 31, year 2, was
$3,000 Correct
$4,000
$5,000
$7,000
 You Answered Correctly!
This answer is correct. The solutions approach is to prepare a T- account for the allowance for doubtful accounts.  The difference between the December 31, year 2, accounts receivable and the net realizable value is $4,000 ($54,000 − $50,000).  This the amount needed to reduce the gross accounts receivable to its net realizable value. Thus, the ending balance of the allowance for doubtful accounts should be $4,000.


The image shows a table for “Allowance for Doubtful Accounts,” where write-offs are 5,000, beginning balance is 6,000, year 2 expenses are 43,000, and end balance is 4,000.

Therefore, $3,000 is the bad debt expense for year 2.