Reference no: EM132830073

Problem 1: If a company uses the allowance method of accounting for bad debts, which one of the following statements is true?

a. It will report accounts receivable in the balance sheet at their net realizable value

b. It will record bad debts only when an account is determined to be uncollectible.

c. It will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts.

d. It violates the matching principle.

Problem 2: On January 1, 2016, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There were $400 of receivables written off as uncollectible in 2016. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance.

The amount of bad debts expense recognized in the 2016 income statement will be:

a. $545

b. $595

c. $745

d. $795