Financial Accounting

P8-2A

Information related to Mingnback Company for 2015 is summarized below.

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?