Reference no: EM133147009
Question - At the beginning of Year1, a company has a balance of $24,000 in accounts receivable. Because the company is a privately owned company, the company has used only the direct write-off method to account for uncollectible accounts. However, at the end of Year 1, the company wishes to obtain a loan at the local bank, which requires the preparation of proper financial statements. This means that the company now will need to use the allowance method. The following transactions occur during Year1 and Year 2.
1. During Year 1, install air conditioning systems on account, $170,000.
2. During Year 1, collect $165,000 from customers on account.
3. At the end of Year 1, estimate that uncollectible accounts total 10% of ending accounts receivable.
4. In Year 2, customers' accounts totaling $6,000 are written off as uncollectible.
Required - Calculate bad debt expense for 2021 and 2022 under the allowance method and under the direct write-off method, prior to any adjusting entries in 2022.
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