During 2011, Salmon Company had net sales of $5,700,000. Most of the sales were on credit. At

Question:

During 2011, Salmon Company had net sales of $5,700,000. Most of the sales were on credit. At the end of 2011, the balance of Accounts Receivable was $700,000, and Allowance for Uncollectible Accounts had a debit balance of $24,000.

Salmon’s management uses two methods of estimating uncollectible accounts expense: the percentage of net sales method and the accounts receivable aging method.

The percentage of uncollectible sales is 1.5 percent of net sales, and based on an aging of accounts receivable, the end-of-year uncollectible accounts total $70,000.

a. Prepare the end-of-year adjusting entry to record the uncollectible accounts expense using the percentage of net sales method. What will the balance of Allowance for Uncollectible Accounts be after the adjustment?

b. Prepare the end-of-year adjusting entry to record the uncollectible accounts expense using the accounts receivable aging method. What will the balance of Allowance for Uncollectible Accounts be after the adjustment?

c. Why are the results different? Which method is likely to be more reliable? Why?

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...