In 2014, the Holmes Corp. had total accounts receivable of $73 million. At the end of that year, it believes that it will collect all but 2% of this balance. However, it is not yet aware of any customers in particular who are not going to pay.

In 2015, the Holmes Corp. learns that six accounts that existed in 2014, with a total value of $1.3 million, will not be paid. It “writes off” these accounts in 2015.

All the rest of the 2014 receivables are collected in 2015.

A. Under the direct write-off method, what bad debt expense would be recorded in:

a. 2014

b. 2015

c. The two years combined?
B. Under the allowance method, what bad debt expense would be recorded in:

a. 2014

b. 2015, as it learns of the six bad customers?

c. 2015, as it learns that the rest of the receivables are collectible?

d. The two years combined?
C. Which method is more conservative?