Here is information related to Orson Company for 2014.
Total credit sales.......... $1,800,000
Accounts receivable at December 31.. 500,000
Bad debts written off......... 15,000
(a) What amount of bad debt expense will Orson Company report if it uses the direct write-off method of accounting for bad debts?
(b) Assume that Orson Company decides to estimate its bad debt expense based on 4% of accounts receivable. What amount of bad debt expense will the company record if it has an Allowance for Doubtful Accounts credit balance of $3,700?
(c) Assume the same facts as in part
(b), except that there is a $2,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debt expense will Orson record?
(d) What is the weakness of the direct write-off method of reporting bad debt expense?