Information related to Joliet Company for 2010 is summarized below. Total credit
ID: 2555213 • Letter: I
Question
Information related to Joliet Company for 2010 is summarized below. Total credit sales Accounts receivable at December 31 Bad debts written off $1,540,000 520,000 26,000 o) What amount of bad debts expense will Jolet Company report if it uses the direct write-off method of accounting for bad debts? (b) Assume that Joliet Company decides to estimate its bad debts expense to be 2% of credit sales. What amount of bad debts expense will Joliet record f Allowance for Doubtful Accounts has a credit balance of $3,0007 (c) Assume that Joliet Company decides to estimate its bad debts expense based on 5% of accounts receivable. What amount of bad debts expense will Joliet Company record ff Allowance for Doubtful Accounts has a credit balance of $4,000 (d) Assume the same facts as in (c), except that there is a $2,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Joliet record?Explanation / Answer
a) Joliet company will report 26000 as bad debts expense because under direct write off method trade receivable become bad debts when actually determined as bad debts.
b) Provision required for bad debt allowance = 2%* Credit sales = 2% * 15,40,000 = 30800
Less: credit balance in allowance for bed debts = 3000
Bad debts expenses to be charged to P& L = 27800
C) Provision required for bad debt allowance = 5%* Trade receivable = 5% * 5,20,000 = 26000
Less: credit Balance in allowance for bed debts = 4000
Bad debts expenses to be charged to P& L = 22000
D) Provision required for bad debt allowance = 5%* Trade receivable = 5% * 5,20,000 = 26000
Add: Debit Balance in allowance for bed debts = 2000
Bad debts expenses to be charged to P& L = 28000