Here is information for Zeus Ltd. for the 2012 calendar year:
Total credit sales………………………………………………………………………………………………$6,600,000
Accounts receivable at December 31…………………………………………………………………..2,500,000
Accounts receivable written off during year……………………………………………………………..96,000
Accounts receivable later recovered (after write-off but before year end)………………..16,000
At the end of the year, uncollectible accounts were estimated to total $104,000 based on an aging schedule.
Instructions
(a) What amount of bad debts expense will Zeus record if Allowance for Doubtful Accounts has an opening credit balance of $40,000 on January 1?
(b) Assume the same facts as in (a) except that there is a $20,000 opening credit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Zeus record?
(c) What are the advantages of using the allowance method of reporting bad debts expense?
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