Information on Hohenberger Company for 2014 follows:
Total credit sales ......................................... $1,000,000
Accounts receivable at December 31 .................. 400,000
Uncollectible accounts written off ..................... 17,500
Amount collected on accounts previously written off (aft er write off but before year end) 2,500
Instructions
(a) Assume that Hohenberger Company decides to estimate its uncollectible accounts using the allowance method and an aging schedule. Uncollectible accounts are estimated to be $24,000. What amount of bad debt expense will Hohenberger Company record if Allowance for Doubtful Accounts had an opening balance of $20,000 on January 1, 2014?
(b) Assume the same facts as in (a) except that the Allowance for Doubtful Accounts had a $12,000 balance on January 1, 2014. What amount of bad debt expense will Hohenberger record on December 31, 2014?
(c) How does the amount of accounts written off during the period affect the amount of bad debt expense recorded at the end of the period?
(d) How does the collection of an account that had previously been written off affect the net realizable value of accounts receivable?
TAKING IT FURTHER
Why doesn't a company sell to only those customers it knows for sure it can collect from?