Bad debts under the allowance method
Arlington Cycle Company began operations on January 1, 2011. The company reported the following selected items in its 2012 financial report:
|
2012 |
2011 |
|
|
Gross Sale |
$1,400,000 |
$1,500,000 |
|
Accounts receivable |
600,000 |
650,000 |
|
Actual bad debt write-offs |
22,000 |
10,000 |
Arlington estimates bad debts at 2 percent of gross sales.
Analyze the activity in the allowance for doubtful accounts T-account, and comment on whether the bad debt estimate has been sufficient to cover the write-offs.