Question

all of 9.2

P9.2A (LO 2) Writing Information related to Mingenback Company for 2020 is summarized below. Compute bad debt amounts. $2,500,000 875,000 Total credit sales Accounts receivable at December 31 Bad debts written off 33,000 Instructions a. What amount of bad debt expense will Mingenback Company report if it uses the direct write-off method of accounting for bad debts? b. Assume that Mingenback Company estimates its bad debt expense based on 6% of accounts receivable. What amount of bad debt expense will Mingenback record if it has an Allowance for Doubtful Accounts credit balance of $3,000? c. Assume the same facts as in (P9.2Ab.), except that there is a $3,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debt expense will Mingenback record? d. What is the weakness of the direct write- off method of reporting bad debt expense?

Answer 1

a b C d Bad debt expense = 33,000 Bad debt expense = (6%x$875,000)-$3,000 =$49,500 Bad debt expense = (6%x$875,000) $3,000 =$55,500 Weekness of direct write off method of reporting bad debt expense are: 1. Failed to satisfy expense recognition principle 2. Failed to recognize expense in the same year in which revenue is earned