Here is information related to Virtual Company for 2007.

(SO 3)

Total credit sales $2,000,000 Accounts receivable at December 31 500,000 Bad debts written off 19,000 Instructions

(a) What amount of bad debts expense will Virtual Company report if it uses the direct write-off method of accounting for bad debts?

(b) Assume that Virtual Company decides to estimate its bad debts expense based on 4%

of accounts receivable. What amount of bad debts expense will the company record if it has an Allowance for Doubtful Accounts credit balance of $4,000?

(c) Assume the same facts as in part (b), except that there is a $2,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Virtual record?

(d) What is the weakness of the direct write-off method of reporting bad debts expense?