Financial Accounting
P8-2A
Information related to Mingnback Company for 2015 is summarized below.
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Total credit sales ; ; $2,500,000
Accounts receivable at Dec 31 ; 875,000
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 to be 2% of credit sales. ; What amount of bad debt expense will Mingenback record if it has an Allowance for Doubtful Accounts credit balance of $4,000?
c) ; 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.
d) ; Assume the same facts as in © , except that there is a a$3,000, debit balance in Allowance for Doubtful Accounts. ; What amount of bad debt expense will Mingenback record?
e) ; What is the weakness of the direct write-off method of reporting bad debt expense?