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Bad debt expense

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7. Turner Co. estimates its uncollectible accounts expense to be 2 percent of credit sales. Turner's credit sales for 2006 were $1,000,000. During 2006, Turner wrote off $18,000 of uncollectible accounts. Turner's Allowance for Uncollectible Accounts account had a $15,000 balance on January 1, 2006. On its December 31, 2006 income statement, what amount should Turner report as bad debt expense?

8. Post Company estimates bad debts at 3% of gross accounts receivable. The following information is from the balances of Post before adjustments:
Debit Credit
Accounts Receivable $2,600,000
Allowance for Uncollectible Accounts 20,800
Net Credit Sales $7,800,000

After adjustment at December 31, 2006, the Allowance for Uncollectible Accounts account should have a credit balance of?

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Solution Preview

Question 7 Allowance for Uncollectible (Doubtful Account) Account Method: Within the Allowance method there are two approaches to estimating bad debts expenses.

A The percentage of sales approach

B The percentage of Receivable Approach.

A The percentage of Sales Approach of Allowance Method:

The percentage of sales approach matches cost and Revenue. In this approach bad debts are estimated as certain percentage of net sales based on past experience.
Bad debts were estimated at2% of all credit sales.
Credit sales 1000000
Bad Debt expenses (1000000 X0.02) = 20000
Bad debt expenses are estimated without considering the previous balance in Allowance account,

In percentage-of-sales method the estimated loss is calculated by applying the specific percentage of Net sales. Unlike the ...

Solution Summary

The expert examines bad debt expense for sales in 2006.

$2.19