Here is information related to Schellhamer Company for 2010. Total credit sales

Question

Here is information related to Schellhamer Company for 2010.

Total credit sales $1,532,850
Accounts receivable at December 31 864,300
Bad debts written off 54,310
(a) What amount of bad debts expense will Schellhamer Company report if it uses the direct write-off method of accounting for bad debts?
(b) Assume that Schellhamer Company decides to estimate its bad debts expense based on 3% of accounts receivable. What amount of bad debts expense will the company record if Allowance for Doubtful Accounts has a credit balance of $3,678?
(c) Assume the same facts as in the question above, except that there is a $1,152 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Schellhamer record?

Explanation / Answer

Sales=1532850 A/R= 864300 B.D written off= 54310 (a) A/R+B.d=Sales+B.D written off( Total debit = Total credit) 864300+B.D=1532850+54310 B.D= 722860 (b)B.D= 3% of A/R given, allowance for doubtful accounts= 3678(cr balance) = 3% of (864300- 3678) = $ 25818.66 (c) given, allowance for doubtful accounts=1152(dr balance) =3% of 864300 +1152 =$ 27081

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