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?