Heritage Mill Works sells finished lumber and mouldings to a variety of housing contractors. Given the nature

Question:

Heritage Mill Works sells finished lumber and mouldings to a variety of housing contractors. Given the nature of the business, most of its sales are on credit, and careful management of credit and bad debts is a critical success factor for this business. The normal credit period is 60 days.
The company's owners place significant emphasis on the operating results as they appear on the statement of earnings. They believe that accurate net earnings are the best indicator of any business s success. The owners are currently looking at revising their credit-granting policies in light of a number of large write-offs that were made in the past year. They are also wondering whether notes receivable should be used in the future for certain types of customers and for very large sales.
Karen Starkly is the clerk for the business and has been asked by the controller to prepare an estimate of bad debts expense for the company, to be used in preparing the annual financial statements. The company had sales of $3,450,000 during the year, of which 9(Y/t were on credit. Historically, the percentage of bad debts has varied from 2% to 4% of credit sales. Bad debts are usually higher in times of economic downturns. Karen notes that business has been strong this year for the entire industry, since interest rate reductions have led to a boom in new housing starts.
The balance in the account on December 31 is $330,000. During the year, the company had written off $73,400 of as uncollectible.
Required:
a. Provide the controller with an estimate of the bad debts expense for the current period. Be prepared to justify your recommendation to the controller.
b. Comment on the magnitude of the that were written off as uncollectible during the year.
c. Discuss the trade-offs that must be considered when deciding credit-granting policies.
d. Explain why it might be appropriate to use notes receivable for certain types of customers or very large sales.
e. What other steps could this company take to reduce the risk of not collecting its receivables in the future? Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...