Accounting Help

P9-2B, A-E

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PLEASE USE THE METHOD BELOW FOR THE PROBLEM

P9-2B Information related to Gustavo Company for 2012 is summarized below. Total credit sales $1,100,000 Accounts receivable at December 31 369,000 Bad debts written off 22,150 Instructions (a) What amount of bad debts expense will Gustavo Company report if it uses the direct write-off method of accounting for bad debts? (b) Assume that Gustavo Company decides to estimate its bad debts expense to be 2% of credit sales. What amount of bad debts expense will Gustavo record if Allowance for Doubtful Accounts has a credit balance of $3,000? (e) Assume that Gustavo Company decides to estimate its bad debts expense based on 6% of accounts receivable. What amount of bad debts expense will Gustavo Company record if Allowance for Doubtful Accounts has a credit balance of $4,000? (d) Assume the same facts as in (c), except that there is a $2,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Gustavo record? What is the weakness of the direct write-off method of reporting bad debts expense? PROBLEM 9-2A (a) $33,000. (b) $44,000 ($2,200,000 X 2%). (c) $46,500 [($825,000 X 6%) - $3,000). (d) $52,500 [($825,000 X 6%) + $3,000]. (e) The weakness of the direct write-off method is two-fold. First, it does not match expenses with revenues. Second, the accounts receivable are not stated at cash realizable value at the balance sheet date