Question

Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2018, net credit sales totaled $5,300,000, and the estimated bad debt percentage is 1.40%. The allowance for uncollectible accounts had a credit balance of $50,000 at the beginning of 2018 and $44,000, after adjusting entries, at the end of 2018 Required 1. What is bad debt expense for 2018 as a percent of net credit sales? 2. Assume Johnson makes no other adjustment of bad debt expense during 2018. Determine the amount of accounts receivable written off during 2018 3. If the company uses the direct write-off method, what would bad debt expense be for 2018? 1. Bad debt expense 2. Accounts receivable written off 3. Bad debt expense

Answer 1

SOLUTION

1. Bad debt expense = Credit sales * Bad debt percentage

= $5,300,000 * 1.40%

= $74,200

2.

Particulars	Amount ($)
Beginning balance	50,000
Add: Bad debt expense	74,200
Less: Ending balance	(44,000)
Accounts receivable written off	80,200

3. If the company uses direct write off method, the bad debt expense for 2018 would be $80,200.