i need help with all of these questions. please help thank you PSA7-7 The follow
ID: 2510244 • Letter: I
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i need help with all of these questions. please help thank you
PSA7-7 The following information relates to Eason Ltd for 2016: Total credit sales Accounts receivable at 31 December 2016 Bad debts written off $200 ooo 46 000 2 900 Required a. What amount of bad debts expense will Eason Ltd report if it uses the direct write-off method of accounting for bad debts? b. Assume that Eason Ltd decides to estimate its bad debts expense based on 5% of accounts receivable. What amount of bad debts expense will the business record if it has an Allowance for Doubtful Debts credit balance of $1600 at 31 December 2015? c. Assume the same facts as in part (b), except that there is debit balance of $1150 in Allowance for Doubtful Debts. What amount of bad debts expense will Eason Ltd record? d. What is the weakness of the direct write-off method of reporting bad debts expense?Explanation / Answer
a Amount of bad debts expense=$2900 b Amount of bad debts expense=(46000*5%)-1600= $700 c Amount of bad debts expense=(46000*5%)+1150= $3450 d The direct wirte off method does not follow the matching principle which requires expenses to be recognized in the same period as revenues are recognized, so direct wirte off method ignores this principle
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