Richelle Ray is president of Richelle Company, a manufacturer of toys for children. For the past 10 years, the company has sold its product to both wholesale and retail dealers of toys in the northeast United States. Over the years, the company has come to know its customers well. While all sales are made on credit, few credit losses have occurred. The company’s experience has shown that an annual provision for uncollectible accounts of 0.3 of 1 percent of sales is adequate.

Early in 2019, Richelle Company decided to expand and develop a new sales base in the southeastern United States. Richelle was pleased when credit sales of $400,000 were achieved in the new territory during the year. To achieve this level of sales and get a foothold in the new territory, though, credit was granted to some customers with lower credit ratings than had been granted in the past. Richelle estimated that during the initial period of development, losses from uncollectible accounts would be 3 percent of sales in the new territory.

The credit losses connected with sales in the southeast became apparent by the end of 2019. The following losses from new territory customers had been identified before year-end:

1. On September 30, it was determined that nothing could be collected from Allison Toy Outlets, which owed Richelle $44,000. The account was written off.

2. On December 10, another new customer, Youth Fun Shops, which owed Richelle $110,000, entered receivership. On that date Richelle was offered, and accepted, a check for $55,000 in final settlement of the debt. The balance was charged off.

3. On December 18, Magic Toys went out of business and no collection of the $13,400 owed Richelle is anticipated. The account was charged off.

The following additional information about the old territory became available on December 31:

■ Sales in the old territory totaled $12,560,000 in 2019.

■ Accounts receivable of $45,200 attributed to customers in the old sales territory were determined to be uncollectible and were written off.

INSTRUCTIONS

1. Record in general journal entries the transactions described above for Richelle Company. All sales are on account. Use the date of December 31 to make the entry to summarize sales for the year and to record uncollectible accounts in the old territory.

2. Give the entry on December 31 to record uncollectible accounts expense for 2019 for both territories. Make the calculation using the percentages developed by Richelle.

3. Assume that the Allowance for Doubtful Accounts had a credit balance of $12,400 on September 30 before any of the above entries were made. Calculate the balance in the allowance account after all of the above entries have been posted.

Analyze: Was Richelle’s provision for losses from uncollectible accounts adequate? Explain.