Question

Information related to Miracle Company for 2015 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 Allowance 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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  • CreatedFebruary 17, 2014
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