Question:
Morse Company uses the aging method to estimate bad debts. At the end of 2014, the allowance for doubtful accounts has a credit balance of 2,400 before write-offs and adjustments. Morse evaluates its past due accounts and decides to write off 4,000 of accounts receivable. Morse then prepares the following aging schedule as of December 31, 2014. Note that the accounts written off are not included in the aging schedule.
Category Amount % uncollectible
|
Not past due
|
140,000
|
2%
|
|
1 Ac€?o 45 days
|
30,000
|
6%
|
|
Beyond 45 days past
|
10,000
|
25%
|
a. After recording bad debt expense, what is the final balance in the allowance for doubtful accounts at December 31, 2014?
b. What effect will bad debts have on Morses reported net income for the period ended December 31, 2014? You may ignore income tax effects.
c. What amount of accounts receivable should Morse report on its December 31, 2014 balance sheet?