Reference no: EM132915480

During its second year of operations, De Guzman Company found itself in financial difficulties. De Guzman Company decided to use its accounts receivable as a means of obtaining cash to continue operations. On July 1, 2018, De Guzman Company sold 1,500,000 of accounts receivable for cash proceeds of 1,390,000. No bad debt allowance was associated with these accounts. On December 15, 2018, De Guzman Company assigned the remainder of its accounts receivable, 5,000,000 as of that date, as collateral on a 2,500,000, 12% annual interest rate loan from Finance Company. De Guzman Company received 2,500,000 less a 2% finance charge. None of the assigned accounts had been collected by the end of the year.

Additional information is as follows:

Allowance for bad debts before adjustments, 12/31/2018...........................65,000
Estimated uncollectible, 12/31/2018.............................................3% of accounts receivable
Accounts receivable not including
factored and assigned accounts,12/31/2018...................................1,000,000

Problem 1: What is the bad debt expense to be recognized by De Guzman Company for 2018?