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West Company: Charge to bad debt expense under two methods

West Company had the following account balances at December 31, 2011 before recording bad debt expense for the year:

Accounts receivable $900,000
Allowance for uncollectible accounts (credit balance) 16,000
Credit Sales for 2011 1,750,000

West is considering the following methods of estimating bad debts for 2011:

? Based on 2% of credit sales
? Based on 5% of year-end accounts receivable

What amount should West charge to bad debt expense at the end of 2011 under each method?

Percentage of Credit Sales Percentage of Accounts Receivable
a. $35,000 $29,000
b. $35,000 $45,000
c. $51,000 $29,000
d. $51,000 $45,000

Solution Preview

West Company had the following account balances at December 31, 2011 before recording bad debt expense for the year:

Accounts receivable $900,000
Allowance for uncollectible accounts (credit balance) 16,000
Credit Sales for 2011 1,750,000

West is considering the following methods of estimating bad debts for 2011:
? Based on 2% of credit sales
? Based on 5% of year-end accounts ...

Solution Summary

With explanations and calculations, the two methods are solved.

$2.19