1. Business
2. Accounting
3. Financial Accounting & Bookkeeping
4. 344828

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Here is information related to Kettle Moraine Company for 2007.
Total credit sales $1,500,000
Accounts receivable at December 31 440,000
Bad debts written off 31,000

Instructions:
(a) What amount of bad debts expense will Kettle Moraine Company report if it uses the direct write-off method of accounting for bad debts?

Formula

(b) Assume that Kettle Moraine Company decides to estimate its bad debts expense based on 3% of
accounts receivable. What amount of bad debts expense will the company record if Allowance for Doubtful
Accounts has a credit balance of $3,000
Amount X Percentage = Formula
Plus debit balance Amount
Formula

(c) Assume the same facts as in part (b), except that there is a $1,000 debit balance in Allowance for Doubtful
Accounts. What amount of bad debts expense will Kettle Moraine record?
Amount X Percentage = Formula
Plus debit balance Amount
Formula

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