Johnson Company uses the allowance method to account for uncollectible accounts

Question

Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2016, net credit sales totaled $5,800,000, and the estimated bad debt percentage is 1.40%. The allowance for uncollectible accounts had a credit balance of $55,000 at the beginning of 2016 and $46,500, after adjusting entries, at the end of 2016. Required: 1. What is bad debt expense for 2016? Bad debt expense 2. Determine the amount of accounts receivable written off during 2016. Accounts receivable written off 3. If the company uses the direct write-off method, what would bad debt expense be for 2016? Bad debt expense

Explanation / Answer

Question - 1

When bad debt expenses are established as a percentage of sales, then bad debt expenses of the year 2016 = Sales * % of bad debts estimated to uncollectable.

= 5800,000 * 1.40% = 81200..................final answer

Question - 2

Existing credit balance in allowance account ---> 55,000 will be added with current year (2016) estimate of 81200. Thus the total balance at the end of 2016 might have been 55000 + 81200 = 136200 ( If none of the bad debts were written off during the year).

But actual balance in the allowance = 46500. That means 136200 - 46500 = 89700 were written off during the year.

89700 ................final answer

Question - 3

Bad debt expenses = Actual bad debts written off during the year = 89700 ...................final answer

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