P8-4A Compute bad debt amounts Here is information related to Morgane Company fo
ID: 2511336 • Letter: P
Question
P8-4A Compute bad debt amounts Here is information related to Morgane Company for 2017 Tota Not Yet Due Number of Days Past Due Customer 1-30 31-60 61-90 Over 90 Aneesh Bird Cope DeSpears Others S 24,000 s 9,000 $15,000 30,000 S 30,000 50,000 5,0005,000 38,000 120,000 72,000 35,000 13,000 $40,000 $38,000 $262,000 $107,000 $49,000 $28,000 $40,000 S38,000 Estimated percentage uncollectible Total estimated bad debts 3% 7% 12% 24% 60% S 42,400 S 3,210 3,430 3,360 s 9,600 $22,800 Total credit sales Accounts receivable at December 31 840,000 Bad debts written off S1,500,000 37,000 Instructions (a) What amount of bad debt expense will Morgane Company report if it uses the direct write-off method of accounting for bad debts? (b) Assume that Morgane Company 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? (c) Assume the same facts as in part (b), except that there is a $1,000 debit balance in Allowance for Doubtful Accounts What amount of bud debt expense will Morane recond? (d) What is a weakness of the direct write-off method of reporting bad debt expense?Explanation / Answer
a)Amount of bad debt expense will be bad debt writtenoff = $ 37000
b)Estimated uncollectible balance at end : 840000*4% = 33600
Bad debt expense = Estimated uncollectible balance at end -credit balance at end
= 33600-3000
= $ 30600
c)Bad debt expense = Estimated uncollectible balance at end - Debit balance at end
= 33600-(-3000)
= 33600+3000
= 36600
d)
Under direct write off method ,bad debt expense will be recorded in the period it is actually not recoverable which does not matches with matching principle which says expense should be recognised in the same period in which revenue in relation to such expense is earned.
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