Question

Johnson Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2013, net credit sales totaled $4,500,000, and the estimated bad debt percentage is 1.5%. The allowance for uncollectible accounts had a credit balance of $42,000 at the beginning of 2013 and $40,000, after adjusting entries, at the end of 2013.Required:1. What is bad debt expense for 2013?2. Determine the amount of accounts receivable written off during 2013.3. If the company uses the direct write-off method, what would bad debt expense be for 2013?

Answer 1

1. $67,500

2. $69,500

3. $69,500

Explanation:

1. The computation of bad debt expense is shown below:-

Bad debt expense = Credit sales × Debt percentage

= $4,500,000 × 1.5%

= $67,500

2. The computation of receivable written off is shown below:-

receivable written off = Allowance Beginning balance + bad debt expense - Allowance ending balance

= $42,000 + $67,500 - $40,000

= $69,500

3. The computation of bad debt expense be for 2013 is shown below:-

= receivable written off

= $69,500