Dundee Company started business on January 1 of the current year. The company made total sales of $900,000 during the year, of which $150,000 were cash sales. By the end of the year, Dundee had received payments of $675,000 from its customers on account. It also wrote off as uncollectible $10,000 of its receivables when it learned that the customer who owed this amount had filed for bankruptcy. That was Dundee Company’s only entry related to bad debts for the period.

Dundee uses the allowance method of accounting for bad debts. Since Dundee is a new company and does not have past experience to base its own estimates on, it decides to use 3% of credit sales as an estimate for its bad debts expense, which is the average percentage for its industry.

Required:

a. What amount of Bad Debts Expense would Dundee Company report on its statement of income for the year?

b. Record the journal entry to write off the account of the customer who declared bankruptcy.

c. What Allowance for Doubtful Accounts balance would be reported on the statement of financial position at the end of the year?

d. What Accounts Receivable balance would be reported on the statement of financial position at the end of the year?

e. Evaluate the reasonableness of the balance in Allowance for Doubtful Accounts at the end of the year.