Reference no: EM132915552
During its second year of operations, Cruz Company found itself in financial difficulties. Cruz Company decided to use its accounts receivable as a means of obtaining cash to continue operations. On July 1, 2018, Cruz Company sold 1,500,000 of accounts receivable for cash proceeds of 1,390,000. No bad debt allowance was associated with these accounts. On December 15, 2018, Cruz Company assigned the remainder of its accounts receivable, 5,000,000 as of that date, as collateral on a 2,500,000, 12% annual interest rate loan from Finance Company. Cruz Company received 2,500,000 less a 2% finance charge. None of the assigned accounts had been collected by the end of the year.
Additional information is as follows:
Allowance for bad debts before adjustments, 12/31/2018...........................65,000
Estimated uncollectible, 12/31/2018.............................................3% of accounts receivable
Accounts receivable not including
factored and assigned accounts,12/31/2018...................................1,000,000
Problem 1: What is the bad debt expense to be recognized by Cruz Company for 2018?
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