Answer:
1) December 31, 2012, bad debt write off
Dr Bad debt expense 1,700
Cr Accounts receivable 1,700
December 31, 2012
Dr Bad debt expense 1,125
Cr Allowance for doubtful accounts 1,125
2) Bad debt expense must be recorded in the income statement and it reduces net income. Both transactions reduce net accounts receivable on the balance sheet.
3) It doesn't seem to be appropriate because just one bad account (J. Doe) was higher than 1.5%. A large % of accounts receivable is still outstanding (= $27,275 / $75,000 = 36.4%) and they should include approximately four months of credit sales. This means that unless the company issues a very long credit, a much larger percent is past due.
Explanation:
net accounts receivable January 1, 2012 = $15,100
credit sales 2012 = $75,000
collections on accounts receivable $60,000
net accounts receivable December 31 = $15,100 + $75,000 - $60,000 - $1,700 - $1,125 = $27,275
