Problem 8-4A Your answer is partially correct. Here is information related to Ki
ID: 2599633 • Letter: P
Question
Problem 8-4A Your answer is partially correct. Here is information related to Kingbird, Inc. for 2017. Total credit sales Accounts receivable at December 31 Bad debts written off $1,424,000 712,000 36,000 (a) What amount of bad debt expense will Kingbird, Inc. report if it uses the direct write-off method of accounting for bad debts? Bad debts expense 36000 (b) Assume that Kingbird, Inc. decides to estimate its bad debt expense based on 4% of accounts receivable. What amount of bad debt expense will the company record if Allowance for Doubtful Accounts has a credit balance of $3,000? Bad debts expense 53969 (c) Assume the same facts as in (b), except that there is a $900 debit balance in Allowance for Doubtful Accounts. What amount of bad debt expense will Kingbird, Inc. record? Bad debts expense 57860 Click if you would like to Show Work for this question: Open Show WorkExplanation / Answer
a) The bad debt expense to be reported will be equal to the bad debt written off, which is $36,000 here.
b) A credit balance in Allowance for Doubtful Accounts means that there is an outstanding bad debt expense, which will be added in any further bad debt expense. So, in the given scenario, a credit balance of $3,000 in Allowance for Doubtful Accounts means that it needs to be added in the amount calculated with 4% of accounts receivable.
Total Bad Debt Expense = $3,000 + ($712,000*4%) = $31,480
c) In this scenario, we need to subtract the debit balance as a debit balance means that Bad Debt Expense account has a credit.
Total Bad Debt Expense = ($712,000*4%) - $900 = $27,580