Final answer:
To calculate the deduction for bad debt expense for Petal, Inc. for 2014, use the aging approach. Subtract the collections on credit from the identifiable bad debts and add it to the beginning balance. The amount of deduction for bad debt expense for Petal, Inc. for 2014 is $2,000.
Step-by-step explanation:
To calculate the deduction for bad debt expense for Petal, Inc. for 2014, we need to use the aging approach. The aging approach involves categorizing outstanding accounts receivable based on their age and assigning a percentage for the likelihood of collection.
Based on the given information, the total credit sales for 2014 were $400,000 and collections on credit were $250,000. The beginning balance in the reserve for bad debts was $0, and identifiable bad debts amounted to $12,000.
To calculate the deduction for bad debt expense, we need to determine the ending balance in the reserve for bad debts. This can be calculated by subtracting the collections on credit from the identifiable bad debts and adding it to the beginning balance. In this case, the ending balance in the reserve for bad debts would be $2,000 ($12,000 - $250,000 + $0). Therefore, the amount of deduction for bad debt expense for Petal, Inc. for 2014 would be $2,000.