Blue Goose Company, which operates a chain of 50 electronics supply stores, has just completed its fourth year of operations. The direct write-off method of recording uncollectible accounts expense has been used during the entire period. Because of substantial increases in sales volume and amount of uncollectible accounts, the firm is considering changing to the allowance method. Information is requested as to the effect that an annual provision of 1/2% of sales would have had on the amount of uncollectible accounts expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:

Instructions
1. Assemble the desired data, using the following column headings:

2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 1/2% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years?Explain.

Transcribed Image Text:

Uncollectible Accounts Written Off Year of Origin of as Uncollectible 2nd Accounts Receivable Written Off Year Sales 1st 3rd 4th 1st 2nd 3rd 4th 650,000 920,000 1,050,000 2,250,000 S1,000 2,650 6,200 9,150 $1,000 750 1,800 1,900 1,400 1,900 $3,000 2,950 4,300 Uncollectible Accounts Expense Balance of Allowance Account, End of Year Expense Expense Actually Based on Year Reported stimate Increase (Decrease) in Amount of Expense