Information related to Izmir Company for 2011 is summarized below.
Total credit sales ............. TL1,100,000
Accounts receivable at December 31 ..... 369,000
Bad debts written off .............. 22,150
Instructions
(a) What amount of bad debts expense will Izmir Company report if it uses the direct write-off method of accounting for bad debts?
(b) Assume that Izmir Company decides to estimate its bad debts expense to be 2% of credit sales. What amount of bad debts expense will Izmir record if Allowance for Doubtful Accounts has a credit balance of TL3,000?
(c) Assume that Izmir Company decides to estimate its bad debts expense based on 6% of accounts receivable. What amount of bad debts expense will Izmir Company record if Allowance for Doubtful Accounts has a credit balance of TL4,000?
(d) Assume the same facts as in (c), except that there is TL2,000 debit balance in Allowance for Doubtful Accounts, What amount of bad debts expense will Izmir Company?
(e) What is the weakness of the direct write-off method of reporting bad debts expense?