Question

DejaVu Company has been in business for several years and has the following information for its operations in the current year: Total credit sales $3,360,000 Bad debts written off in the year 62,000 Accounts receivable balance on December 31 (after writing off the bad debts above) 501,000

Assume that DejaVu Company decides to estimate its bad debts expense at 2% of credit sales. i. What amount of bad debts expense will the company record if it has a credit balance (before adjustment) of $6,100 in its Allowance for Doubtful Accounts on December 31? Bad debts expense $Enter a dollar amount. ii. What amount of bad debts expense will it record if there is a debit balance (before adjustment) of $6,100 in its Allowance for Doubtful Accounts on December 31? Bad debts expense $Enter a dollar amount.

Assume that DejaVu Company estimates its bad debts based on an aging analysis of its year-end accounts receivable, which indicates that a provision for uncollectible accounts of $54,000 is required. i. What amount of bad debts expense will the company record if it has a credit balance (before adjustment) of $6,100 in its Allowance for Doubtful Accounts on December 31? Bad debts expense $Enter a dollar amount. ii. What amount of bad debts expense will it record if there is a debit balance (before adjustment) of $6,100 in its Allowance for Doubtful Accounts on December 31? Bad debts expense $Enter a dollar amount.

What amount of bad debts expense will DejaVu report if it uses the direct writeoff method of accounting for bad debts? Bad debts expense $Enter a dollar amount.

Answer 1

Solution 1 (i):

Bad debts expense = credit sales * 2% = $3,360,000*2% = $67,200

Solution 1 (ii):

Bad debts expense = credit sales * 2% = $3,360,000*2% = $67,200

Solution 2 (i):

Bad debts expense = Required allowance - Existing balance in allowance for doubtful accounts = $54,000 - $6,100 = $47,900

Solution 2 (ii):

Bad debts expense = Required allowance + Existing debit balance in allowance for doubtful accounts = $54,000 + $6,100 = $60,100

Solution 3:

Bad debts expense = Bad debts written off = $62,000