Direct write-off method of reporting bad debts expense

Reference no: EM131768974

Qusetion: Here is information related to Taringa Ltd for 2010:

Total credit sales $4 000 000

Accounts receivable at 31 December 2010 920 000

Bad debts written off 58 000

(a) What amount of bad debts expense will Taringa Ltd report if it uses the direct write-off method of accounting for bad debts?

(b) Assume that Taringa Ltd decides to estimate its bad debts expense based on 5% of accounts receivable. What amount of bad debts expense will the business record if it had an Allowance for Doubtful Debts credit balance of $32 000 at 31 December 2010 (i.e. 1 January 2011)?

(c) Assume the same facts as in part (b), except that there is a $23 000 debit balance in Allowance for Doubtful Debts. What amount of bad debts expense will Taringa Ltd record?

(d) What is the weakness of the direct write-off method of reporting bad debts expense?

Reference no: EM131768974

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