Ervin Company uses the allowance method to account for uncollectible accounts receivable. Bad debt expense is established as a percentage of credit sales. For 2021, net credit sales totaled $4,500,000, and the estimated bad debt percentage is 1.5%. No previously written-off accounts receivable were reinstated during 2021. The allowance for uncollectible accounts has a credit balance of $42,000 at the beginning of 2021 and $40,000, after adjusting entries, at the end of 2021.

Required:

a. What is bad debt expense for 2021?

b. Determine the amount of accounts receivable written off during 2021.

c. If the company uses the direct write-off method, what would bad debt expense be for 2021?

1) The estimated bad debt percentage is 1.5% of $4,500,000 = $ 67,500

2) Accounts Receivable Written Off $ 69500

3) If direct method is used the amount of bad debts expense during the year 2021 would be $ 67,500

Explanation:

Ervin Company

For 2021, net credit sales totaled $4,500,000,

1) The estimated bad debt percentage is 1.5% of $4,500,000 = $ 67,500

Allowance for uncollectible accounts beginning balance $42,000 Cr

Add Bad Debts $ 67,500

Deduct Allowance for uncollectible accounts ending balance $40,000

2) Accounts Receivable Written Off $ 69500

This can also be determined using a T account

All. for Uncollectibles Debt Credit

Beg Bal; $ 42,000

Bad debts 67,500

A/R written Off

69,500

Balance $ 40,000

3) If direct method is used the amount of bad debts expense during the year 2021 would be $ 67,500