Ulysis Corporation makes and sells clothing to fashion stores throughout the country. On December 31, 2012, before

Question:

Ulysis Corporation makes and sells clothing to fashion stores throughout the country. On December 31, 2012, before adjusting entries were made, it had the following account balances on its books:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,320,000

Sales revenue, 2012 (60% were credit sales) . . . . . . . . . . . . . . . . . . . . . . 16,000,000

Allowance for bad debts (credit balance). . . . . . . . . . . . . . . . . . . . . . . . . 4,000

Required:

1. Make the appropriate adjusting entry on December 31, 2012, to record the allowance for bad debts if uncollectible accounts receivable are estimated to be 3% of accounts receivable.

2. Make the appropriate adjusting entry on December 31, 2012, to record the allowance for bad debts if uncollectible accounts receivable are estimated on the basis of an aging of accounts receivable; the aging schedule reveals the following:

3. Now assume that on March 3, 2013, it was determined that a $64,000 account receivable from Petite Corners is uncollectible. Record the bad debt, assuming the allowance method is used.

4. Further assume that on June 4, 2013, Petite Corners paid this previously written-off debt of $64,000. Record the payment, assuming the allowance method had been used on March 3 to record the bad debt.

5. Interpretive Question: Why is the allowance method of accounting for bad debts preferred over the direct write-off method?

Accounts Receivable
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