Allowance Method for Accounting for Bad Debts At the beginning of 2010, Miyazaki Company’s accounts receivable balance was $105,000, and the balance in Allowance for Doubtful Accounts was $1,950. Miyazaki’s sales in 2010 were $787,500, 80% of which were on credit. Collections on account during the year were $502,500. The company wrote off $3,000 of uncollectible accounts during the year.

Required

1. Identify and analyze the transactions related to the sales, collections, and write-offs of accounts receivable during 2010.

2. Identify and analyze the adjustments to recognize bad debts assuming that

(a) Bad debts expense is 3% of credit sales and

(b) Amounts expected to be uncollectible are 6% of the year-end accounts receivable.

3. What is the net realizable value of accounts receivable on December 31, 2010, under each assumption in (2)?

4. What effect does the recognition of bad debts expense have on the net realizable value? What effect does the write-off of accounts have on the net realizable value?