At the start of the year, Habitat for Humanity reports gross contributions receivable of $10,000 and a related allowance for bad debts of $2,000. During the year, $7,500 of these receivables are collected and the rest are written off. Habitat for Humanity records current year contributions of $150,000, of which $120,000 are collected in cash. Its ending allowance for bad debts balance should be 20% of uncollected receivables. All of these promises are short-term so Habitat for Humanity does not discount them to present value.

What is bad debt expense for the current year?

a. $6,500

b. $6,000

c. $5,500

d. $4,000