Direct write-off method of accounting for bad debts

Question

Task: Information related to Holland Company for 2002 is summarized below.

Total credit sales                             $2,100,000
Accounts receivable at December 31     840,000
Accounts receivable written off               38,000

Instructions:

Question 1: What amount of bad debts expense will Holland Company report if it uses the direct write-off method of accounting for bad debts?

Question 2: Assume that Holland Company estimates its bad debts expense to be 3% of credit sales. What amount of bad debts expense will Holland record if it has an Allowance for Doubtful Accounts credit balance of $4,000?

Question 3: Assume that Holland Company estimates its bad debts expense based on 6% of accounts receivable. What amount of bad debts expense will Holland record if it has an Allowance for Doubtful Accounts credit balance of $3,000?

Question 4: Assume the same facts as in (c), except that there is a $3,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Holland record?

Question 5: What is the weakness of the direct write-off method of reporting bad debts expense?