Gilmore Electronics had the following data for a recent year:
Cash sales ...................... $135,000
Credit sales ..................... 512,000
Accounts receivable determined to be uncollectible ...... 9,650
The firm’s estimated rate for bad debts is 2.2 percent of credit sales.
Required:
1. Prepare the journal entry to write off the uncollectible accounts.
2. Prepare the journal entry to record the estimate of bad debt expense.
3. By how much would bad debt expense reported on the income statement have changed if Gilmore had written off $3,000 of receivables as uncollectible during the year?
4. Assuming Gilmore’s estimate of bad debts is correct (2.2 percent of credit sales) and their gross margin is 20 percent by how much did Gilmore’s income from operations increase assuming $150,000 of the sales would have been lost if credit sales were not offered?