Question

Dejavu Company has been in business for several years and has the following information for its operations in the current year: Total credit sales Bad debts written off in the year Accounts receivable balance on December 31 (after writing off the bad debts above) $3,081,000 80,000 510,000 Assume that DejaVu Company decides to estimate its bad debts expense at 2% of credit sales. i. What amount of bad debts expense will the company record if it has a credit balance (before adjustment) of $6,000 in its Allowance for Doubtful Accounts on December 31? Bad debts expenset ii. What amount of bad debts expense will it record if there is a debit balance (before adjustment) of $6,000 in its Allowance for Doubtful Accounts on December 31? Bad debts expenset Assume that Dejavu Company estimates its bad debts based on an aging analysis of its year-end accounts receivable, which indicates that a provision for uncollectible accounts of $56,000 is required. i. What amount of bad debts expense will the company record if it has a credit balance (before adjustment) of $6,000 in its Allowance for Doubtful Accounts on December 31? Bad debts expenset ii. What amount of bad debts expense will it record if there is a debit balance (before adjustment) of $6,000 in its Allowance for Doubtful Accounts on December 31? Bad debts expenset What amount of bad debts expense will Dejavu report if it uses the direct writeoff method of accounting for bad debts? Bad debts expenset

Answer 1

Solution 1.i:

Bad debts expense = Credit sales * 2% = $3,081,000*2% = $61,620

Solution 1.ii:

Bad debts expense = Credit sales * 2% = $3,081,000*2% = $61,620

Solution 2.i:

Bad debts expense = Required allowance - Existing balance of allowance account = $56,000 - $6,000 = $50,000

Solution 2.ii:

Bad debts expense = Required allowance + Existing debit balance of allowance account = $56,000 + $6,000 = $62,000

Solution 3:

Bad debts expense = Bad debts written off during the period = $80,000