Information related to Miracle Company for 2014 is summarized below. Total credit sales $1,000,000 Accounts receivable at

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 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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Related Book For  answer-question

Accounting Principles

ISBN: 9781118566671

11th Edition

Authors: Jerry Weygandt, Paul Kimmel, Donald Kieso

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