Reference no: EM132634739

You were assigned to audit Natasha Inc.'s accounts receivable which had an unadjusted balance per books of (P755,142, net of an allowance for bad debts amounting to P32,858. Your inquiries and investigations revealed the following information:

a. The only entries in the Bad debt expense account were:

A credit for P1,296 on December 1, 2014, because a customer remitted in full account charged off on October 31, 2014.

A debit on December 31, for the amount of the credit to Allowance for bad debt on the same date

b. The allowance for bad debt accounts had the following details:

Jan. 1, balance P15,250 June. 30, write off of accounts (1,296) Aug. 31, write off of accounts (3,280) Oct. 31, write off of accounts (2,256) Dec. 31, Bad debt expense (3%*788,000) 23,640 Dec. 31, balance P32,858 Records revealed that the December 31, 2014 bad debt expense was debited to the bad debt expense account and credited to allowance for bad debt for the amount shown above, while the write offs credited to accounts receivable amounted only to P6,032, Further investigation revealed that the correct amounts to be written off were shown in the analysis above.

c. An aging schedule of the accounts receivable as of December 31, 2014, and the decisions are as shown in the table below: Amount to which the allowance is to be adjusted after adjustments and corrections have been made Age Net debit bal. 0-1 Month P372,960 1% 1 - 3 months 307,280 2% 3-6 months 88,720 3% Over 6 months 24,000 Definitely uncollectible, P4,000; P8,000 is considered to be 50% uncollectible; the remainder is estimated to be750% collectible

d. There is a credit balance in one accounts receivable (0 1 months) of P8,000; it represents an advance on a sales contract; also there is a e in one of the 1-3 months accounts receivable of P2,000 for which merchandise will be accepted by the customer.

e. The accounts receivable control account is not in agreement with the subsidiary ledger The differences cannot be located, and the company's accountant decides to adjust the control to the sum of the subsidiaries after corrections are made.

Requirements:

Question 1. What is the correct bad debt expense for the year?

a. 10,296

b. 13,343

c. 10,640

d. 14,640