Here is information related to Schellhamer Company for 2010.
Total credit sales ........................... $1,500,000
Accounts receivable at December 31 ...... 840,000
Bad debts written off .......................... 41,000
Instructions
(a) What amount of bad debts expense will Schellhamer Company report if it uses the direct write-off method of accounting for bad debts?
(b) Assume that Schellhamer Company decides to estimate its bad debts expense based on 3% of accounts receivable. What amount of bad debts expense will the company record if Allowance for Doubtful Accounts has a credit balance of $3,000?
(c) Assume the same facts as in part (b), except that there is a $1,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Schellhamer record?
(d) What is a weakness of the direct write-off method of reporting bad debts expense?