Question

Information related to accounts receivable is given for two cases:
Case 1 Technology Solutions uses the credit sales method to estimate bad debt expense. Sales this year were $ 5,600,000, of which 70% were on credit. History has shown that 1.2% of credit sales will be uncollectible over time. he company reported a balance of $ 677,200 of accounts receivable at the end of the year before any adjustment. he allowance for doubtful accounts was $ 14,900, and the allowance for sales discounts was $ 6,000 before adjustment. Analysis shows that receivables of $ 24,500 must be written of, and approximately $ 3,900 of cash discounts will be taken when existing accounts receivable are collected.
Case 2 At the beginning of the year, Health Products Corp. has a balance of $ 2,450,000 in accounts receivable and $ 220,000 in the allowance for doubtful accounts. Sales for the year were $ 19,300,000, of which 70% were on credit. Cash payments on account were $ 12,905,000. Sales returns were $ 340,000. Accounts of $ 107,600 were written of, but $ 32,900 was subsequently recovered and collected. his $ 32,900 cash payment was in addition to the collections previously mentioned. At year- end, a review indicated that 8% of outstanding accounts receivable were uncollectible, but that there was no risk of further sales returns.

Required:
For each case above, show how net accounts receivable would be reported on the statement of inancial position, and calculate bad debt expense for the year.



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  • CreatedFebruary 17, 2015
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