Question

You have obtained the following information about Plantagenet Inc. (Plantagenet) from its 2018 annual report:
i. Plantagenet's year-end is June 30.
ii. Sales for the year ended June 30, 2018 were $8,470,000; 85 percent of sales are credit sales.
iii. The balance in accounts receivable on June 30, 2018 was $1,220,000.
iv. The balance in allowance for uncollectible accounts on June 30, 2017 was $96,000.
v. During fiscal 2018, Plantagenet wrote off $84,000 of accounts receivable.
vi. The bad debt expense can be estimated as 1.5 percent of credit sales or 9.5 percent of year-end accounts receivable.
vii. Net income for the year ended June 30, 2018, including all revenues and expenses except for the bad debt expense, was $500,000.

Required:
a. Determine the bad debt expense for the year ended 2018, assuming that Plantagenet used:
i. The direct-write off method for accounting for uncollectible accounts.
ii. The percentage-of-credit-sales method for accounting for uncollectible accounts.
iii. the percentage-of-receivables method for accounting for uncollectible accounts.
b. What would be the balance in allowance for uncollectible accounts on June 30, 2018 using the three methods identified in (a)?
c. Prepare the journal entry required to record the bad debt expense under each of the three methods identified in (a).
d. What would net income be in 2018 under each of the three methods in (a)?
e. Explain why the three methods in (a) provide different bad debt expenses.
f. Which method of determining the bad debt expense and the allowance for uncollectible accounts is best? Explain.



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  • CreatedFebruary 26, 2015
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