Question

M Company uses the percentage of sales method to account for its uncollectible accounts. On December 31, 2018, M has $1,800,000 in sales and 60% of these sales were in cash. M has a $2,000 credit balance in its allowance for doubtful account. Past experience suggested that 0.5% of credit sales are uncollectible. Requirements [You must show your work/steps of how you arrive at your answers] Question 1: What is the amount that M should report as its estimated bad debt expenses for year 2018

Answer 1

See below

Step-by-step explanation:

Estimated uncollectible based on past experience

= [($1,800,000 × 60%) × 0.5%]

= $1,080,000 × 0.5%

= $5,400

Credit balance in allowance for doubtful account = $2,000

Therefore, the total amount M should report as its estimated bad debts expense for the year 2018

= $5,400 - $2,000

= $3,400