Question

Information related to Miracle Company for 2014 is summarized below.
Total credit sales $1,000,000
Accounts receivable at December 31 369,000
Bad debts written off 22,150
Instructions
(a) What amount of bad debt expense will Miracle Company report if it uses the direct
write-off method of accounting for bad debts?
(b) Assume that Miracle Company decides to estimate its bad debt expense to be 2% of
credit sales. What amount of bad debt expense will Miracle record if Allowance for
Doubtful Accounts has a credit balance of $3,000?
(c) Assume that Miracle Company decides to estimate its bad debt expense based on 5%
of accounts receivable. What amount of bad debt expense will Miracle Company
record if Allowance for Doubtful Accounts has a credit balance of $4,000?
(d) Assume the same facts as in (c), except that there is a $2,000 debit balance in Allow-
ance for Doubtful Accounts. What amount of bad debt expense will Miracle record?
(e) What is the weakness of the direct write-off method of reporting bad debt
expense?



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  • CreatedJanuary 30, 2014
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