C 6-3 Bad Debt Expense LO 6.5AICPA Adapted When a company has a policy of making...

C 6-3

Bad Debt Expense

LO 6.5AICPA Adapted When a company has a policy of making sales for which credit is extended, it is reasonable to expect a portion of those sales to be uncollectible. As a result, a company must recognize bad debt expense. The two methods of recognizing bad debt expense are the (1) direct write-off method and (2) allowance method.

Required:

Describe fully both the direct write-off method and the allowance method of recognizing bad debt expense.
Explain the reasons why one of these methods is preferable to the other and the reasons why the other method is not usually in accordance with generally accepted accounting principles.

Expert Solution

ekkarill92 answered 2 years ago

Vandross Company has recorded bad debt expense in the past at a rate of 1½% of...

Vandross Company has recorded bad debt expense in the past at a rate of 1½% of accounts receivable, based on an aging analysis. In 2017, Vandross decides to increase its estimate to 2%. If the new rate had been used in prior years, cumulative bad debt expense would have been $380,000 instead of $285,000. In 2017, bad debt expense will be $120,000 instead of $90,000. If Vandross’s tax rate is 30%, what amount should it report as the cumulative effect...

Why not make the following entry when recording bad debt expense for the period? Dr. Bad...

Why not make the following entry when recording bad debt expense for the period? Dr. Bad debt expense, Cr. Accounts receivable

ily Company has historically reported a bad debt expense amount of between 1% and 4% of...

ily Company has historically reported a bad debt expense amount of between 1% and 4% of sales. The percentage for any given year is a function of both the business conditions for the year and whether recent experience suggests that the estimates in past years have been too high or too low. For example, if estimates in past years have been too high, a lower amount of bad debt expense is recognized in the current year. Lily Company's board of...

Daley Company prepared the following aging of receivables: Bad Debt Expense

Daley Company prepared the following aging of receivables analysis at December 31. Days Past Due Total01 to 3031 to 6061 to 90Over 90Account receivables670000416000110000560003800050000% uncollectible 3%4%7%9%12%Requirements:a. Complete the table below to calculate the estimated balance of Allowance for Doubtful Accounts using aging of accounts receivable.b. Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $5,600 credit.c. Prepare the adjusting entry to record...

Under the direct write-off method, when is bad debt expense (uncollectible accounts expense) recognized? Under the...

Under the direct write-off method, when is bad debt expense (uncollectible accounts expense) recognized? Under the allowance method, when is bad debt expense recognized? Name 1 reason why the direct write-off method is NOT allowed by FASB?

Jake Company records bad debt expense using the net credit sales method and has estimated that...

Jake Company records bad debt expense using the net credit sales method and has estimated that 5.5% of its credit sales will prove to be uncollectible. During 2019, Jake Company reported net credit sales of $120,000 and collected $150,000 cash from its credit customers. The $150,000 includes a $6,000 recovery of an account receivable written off in the previous year. During 2019, Jake Company wrote-off as uncollectible accounts receivable of $4,000. Jake Company reported accounts receivable at January 1, 2019...

Jake Company records bad debt expense using the net credit sales method and has estimated that...

Jake Company records bad debt expense using the net credit sales method and has estimated that 5.5% of its credit sales will prove to be uncollectible. During 2019, Jake Company reported net credit sales of $120,000 and collected $150,000 cash from its credit customers. The $150,000 includes a $6,000 recovery of an account receivable written off in the previous year. During 2019, Jake Company wrote-off as uncollectible accounts receivable of $4,000. Jake Company reported accounts receivable at January 1, 2019...

Jake Company records bad debt expense using the net credit sales method and has estimated that...

Jake Company records bad debt expense using the net credit sales method and has estimated that 5.5% of its credit sales will prove to be uncollectible. During 2019, Jake Company reported net credit sales of $120,000 and collected $150,000 cash from its credit customers. The $150,000 includes a $6,000 recovery of an account receivable written off in the previous year. During 2019, Jake Company wrote-off as uncollectible accounts receivable of $4,000. Jake Company reported accounts receivable at January 1, 2019...

Sheridan Company uses the percentage of sales method to record bad debt expense. It estimates that...

Sheridan Company uses the percentage of sales method to record bad debt expense. It estimates that 2% of net credit sales (all made on account) will become uncollectible. Sheridan Company reported the following information in its general ledger for the year ended September 30, 2021: Sales Debit Credit 954,000 Accounts Receivable Debit Credit 257,000 Allowance for Doubtful Accounts Debit Credit 2,000 1) Prepare the adjusting entry to record bad debt expense at year end. 2) Calculate the carrying amount of...

Mel's Hardware uses the allowance method to determine their bad debt expense. The allowance for bad...

Mel's Hardware uses the allowance method to determine their bad debt expense. The allowance for bad debts is based on the balance in the accounts receivable account. Mel's hardware uses the rate of 0.75% of accounts receivable to determine the appropriate balance in the allowance for doubtful accounts. The data collected from Mel's Hardware is as follows. A/R: $49,477.00 Allowance for doubtful accounts: debit $350.00 Credit sales: $144,554.00 Bad Debt Expense: -0-

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C 6-3 Bad Debt Expense LO 6.5AICPA Adapted When a company has a policy of making...

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Vandross Company has recorded bad debt expense in the past at a rate of 1½% of...

Why not make the following entry when recording bad debt expense for the period? Dr. Bad...

ily Company has historically reported a bad debt expense amount of between 1% and 4% of...

Daley Company prepared the following aging of receivables: Bad Debt Expense

Under the direct write-off method, when is bad debt expense (uncollectible accounts expense) recognized? Under the...

Jake Company records bad debt expense using the net credit sales method and has estimated that...

Jake Company records bad debt expense using the net credit sales method and has estimated that...

Jake Company records bad debt expense using the net credit sales method and has estimated that...

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Mel's Hardware uses the allowance method to determine their bad debt expense. The allowance for bad...