Financial Accounting
Review of CH 5- CH 8
7. Information related to Mingenback Ltd. for 2020 is summarized below.
Total credit sales
£2,500,000
Accounts receivable at December 31
875,000
Bad debts written off
33,000
Instructions
a. What amount of bad debt expense will Mingenback Ltd. report if it uses the direct write-off method of accounting
for bad debts?
b. Assume that Mingenback Ltd. estimates its bad debt expense based on 6% of accounts receivable. What amount
of bad debt expense will Mingenback record if it has an Allowance for Doubtful Accounts credit balance of £3,000?
c. Assume the same facts as in (b), except that there is a £3,000 debit balance in Allowance for Doubtful Accounts.
What amount of bad debt expense will Mingenback record?
d. What is the weakness of the direct write-off method of reporting bad debt expense?
