Part B Lance Company uses the allowance method to account for uncollectible acco
ID: 2462926 • Letter: P
Question
Part B
Lance Company uses the allowance method to account for uncollectible account receivable. Bad debt expense is established as a percentage of credit sales. For 2014, net credit sales totaled $5,000,000 and the estimated bad debt percentage is 2%. The allowance for uncollectible accounts had a credit balance of $30,000 at the beginning of 2014 and $10,000, after adjusting entries, at the end of 2014.
Required:
1. What is bad debt expense for 2014?
2. Determine the amount of accounts receivable written off during 2014?
3. If the company used the direct write-off, what would bad debt expense be for 2014?
Explanation / Answer
Answer:
1)
Bad debt expense for 2014 = 2% of $ 5,000,000 = $ 100,000.
2)
Amount of accounts receivable written off during 2014 = Beginning balance of Allowance for uncollectible accounts + Bad debt expense for 2014 - Ending balance of Allowance for uncollectibel accounts.
= 30,000 + 100,000 - 10,000 = $ 120,000
3)
If company used the direct write-off method, then bad debt expense for 2014 be = Beginning balance of Allowance for uncollectible accounts - Ending balance of Allowance for uncollectible accounts
= 30,000 - 10,000 = $ 20,000.