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 2018, 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 2018 and $40,000, after adjusting entries, at the end of 2018.Required:
1. What is bad debt expense for 2018?
2. Determine the amount of accounts receivable written off during 2018.
3. If the company uses the direct write-off method, what would bad debt expense be for 2018?

Answer 1

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