Question

Ervin Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2021, net credit sales totaled $5,200,000, and the estimated bad debt percentage is 1.30%. No previously written-off accounts receivable were reinstated during 2021. The allowance for uncollectible accounts had a credit balance of $49,000 at the beginning of 2021 and $43,500, after adjusting entries, at the end of 2021.
Required:
1. What is bad debt expense for 2021 as a percent of net credit sales?
2. Assume Ervin makes no other adjustment of bad debt expense during 2021. Determine the amount of accounts receivable written off during 2021.
3. If the company uses the direct write-off method, what would bad debt expense be for 2021?

Answer 1

Answer:

1) The bad debts expense for 2021 as a percent of net credit sales is  $ 67,600.

2)Accounts Receivable Written Off $ 24,900

3)If direct method is used the amount of bad debts expense during the year 2021 would be $ 67,600

Explanation:

Ervin Company

Net credit sales  $5,200,000,

Beginning Allowance for Uncollectible Accounts $49,000 Cr

Ending Allowance for Uncollectible Accounts $43,500 Cr

Accounts Receivable Written Off $ 24,900

Estimated Bad debts =   1.30% of  $5,200,000 = $ 67,600

1) The bad debts expense for 2021 as a percent of net credit sales is  $ 67,600.

2.   All. for Uncollectibles    

Debt                                        Credit

                                  Beg Bal; $ 49,000

Bad debts 67,600

A/R written Off

$24,900

                                         Balance $ 43,500

2) Accounts Receivable Written Off $ 24,900.

This is found by using a T - account for Allowance for uncollectibles. As the beginning and ending balances of  Allowance for uncollectibles are credit balances, they would go on the credit side and bad debts expense and Account Receivable written off on the debit side as they are the expenses.

3)If direct method is used the amount of bad debts expense during the year 2021 would be $ 67,600