Answer:
1. Debit Bad debt expense for $67,500
2. The amount of accounts receivable written off during 2018: $69,500
3. If the company uses the direct write-off method, Bad debt expense for 2018 would be $69,500
Explanation:
1. In Johnson Company, Bad debt expense is established as a percentage of credit sales.
Estimated bad debt = $4,500,000 x 1.5% = $67,500
The company establishes an allowance for uncollectible accounts for $67,500 while simultaneously reporting $67,500 in bad debt expense by the adjusting entry:
Debit Bad debt expense $67,500
Credit The allowance for uncollectible accounts $67,500
2.
The amount of accounts receivable written off during 2018 = the beginning of allowance for uncollectible accounts balance + Bad debt expense for 2018 - the ending of allowance for uncollectible accounts balance = $42,000 + $67,500 - $40,000 = $69,500
3. If the company uses the direct write-off method,
Bad debt expense for 2018 = The amount of accounts receivable written off during 2018 = $69,500
