Answer:
1. Bad debt expense = $97,500
2. Accounts receivable written off = $109,500
3. Bad debt expense for 2021 = $109,500
Explanation:
Bad debts expense refers to an uncollectible accounts expense that occurs because goods or services are delivered on credit a company to a customer who did not paid the amount owed.
The questions can be answered as follows:
1. What is bad debt expense for 2021 as a percent of net credit sales?
Under this, bad debt can be calculated using the following formula:
Bad expense = Net credit sales * Estimated bad debt percentage ....... (1)
Where;
Net credit sales = $6,500,000
Estimated bad debt percentage = 1.50%
Substituting the values into equation (1), we have:
Bad debt expense = $6,500,000 * 1.50% = $97,500
2. Assume Ervin makes no other adjustment of bad debt expense during 2021. Determine the amount of accounts receivable written off during 2021.
This can be calculated using the following formula:
Accounts receivable written off = Beginning uncollectible balance + Bad debt expenses - Ending uncollectible balance ............ (2)
Where;
Beginning uncollectible balance = $62,000
Bad debt expenses = $97,500
Ending uncollectible balance = $50,000
Substituting the values into equation (2), we have:
Accounts receivable written off during 2021 = $62,000 + $97,500 - $50,000 = $109,500
3. If the company uses the direct write-off method, what would bad debt expense be for 2021?
Under the direct write-off method, the exact amount of uncollectible accounts as they are specifically identified are recorded.
Based on this explanation, bad debt expense for 2021 is equal to the accounts receivable written off during 2021 calculated in part 2 above. Therefore, we have:
Bad debt expense for 2021 = $109,500
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