Question: Here is information related to Morgane Company for 2017.
Total credit sales $1,500,000
Accounts receivables at December 31 840,000
Bad debts written off 37,000
Instructions: (a) What amount of bad debt expense will Morgane Company report if it uses the direct write-off method of accounting for bad debts?
(b) Assume that Morgane Company decides to estimate its bad debt expense based on 4% of accounts receivable. What amount of bad debt 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 debt expense will Morgane record?
(d) What is a weakness of the direct write-off method of reporting bad debt expense?