Questions
BU.210.620.W5.FA24 Quiz II
Numerical
Peace Company, a leading furniture company, shows the following information in its accounting records relating to 2020: Accounts Receivable, January 1, 2020 $125,000 Accounts Receivable, December 31, 2020 150,000 Allowance for Doubtful Accounts, January 1, 2020 15,000 credit 2020 Cash Collections from Customers on 2020 Sales 400,000 2020 Cash Collections from Customers on 2019 Sales 100,000 2020 Credit Sales 550,000 Peace Company has a fiscal year end of December 31. A) Assume that Peace uses the percentage of sales method to compute bad debt expense, and that it estimates 2% of the credit sales will be uncollectible. What amount of bad debt expense would Peace recognize on its 2020 income statement?
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To tackle this problem, I’ll outline how the percentage-of-sales method works and then apply it to the given data.
Under the percentage-of-sales approach, the company estimates bad debts as a percentage of credit sales for the period. The key point is that the bad debt expense recognized on the income statement is driven by sales made on credit, not by ca......Login to view full explanationLog in for full answers
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