Information related to Hermesch Company for 2010 is summarized below.
Total credit sales............ $2,200,000
Accounts receivable at December 31.... 825,000
Bad debts written off........ 33,000
Instructions
(a) What amount of bad debts expense will Hermesch Company report if it uses the direct writeoff method of accounting for bad debts?
(b) Assume that Hermesch Company estimates its bad debts expense to be 2% of credit sales. What amount of bad debts expense will Hermesch record if it has an Allowance for Doubtful?
Accounts credit balance of $4,000?
(c) Assume that Hermesch Company estimates its bad debts expense based on 6% of accounts receivable. What amount of bad debts expense will Hermesch record if it has an Allowance for Doubtful Accounts credit balance of $3,000?
(d) Assume the same facts as in (c), except that there is a $3,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Hermesch record?
(e) What is the weakness of the direct write-off method of reporting bad debts expense?