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Accounting for Bad Debts

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Accounting for Bad Debts

Information related to Hamilton Company for 2014 is summarized below:
Total credit sales : $2,500,000
Accounts receivable at December 31 : 970,000
Bad debts written off : 66,000

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

b) Assume that Hamilton Company estimates its bad debts expense to be 3% of credit sales. What amount of bad debts expense will Hamilton record if it has an Allowance for Doubtful Accounts credit balance of $4,000?

c) Assume that Hamilton Company estimates its bad debts expense based on 7% of accounts receivable. What amount of bad debts expense will Hamilton record if it has an Allowance for Doubtful Accounts credit balance of $3,000?

d) Assume that Hamilton Company estimates its bad debts expense based on 7% of accounts receivable. What amount of bad debts expense will Hamilton record if it has an Allowance for Doubtful Accounts debit balance of $3,000?

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Solution Summary

For your review, I have attached a formatted MS Excel spreadsheet which contains detailed instructions for the accounting of bad debts using the bad debt expense and allowance for bad debt accounts.

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