The balances of selected accounts of the Dexter Company on December 31, 2019, are given below:

Accounts Receivable..........................................................................$ 425,000

Allowance for Doubtful Accounts (credit)...............................................2,000

Total Sales...........................................................................................5,025,000

Sales Returns and Allowances (total)..................................................125,000

(Credit sales were $4,300,000. Returns and allowances on these sales were $105,000.)

INSTRUCTIONS

1. Compute the amount to be charged to Uncollectible Accounts Expense under each of the following different assumptions:

a. Uncollectible accounts are estimated to be 0.2 percent of net credit sales.

b. Experience has shown that about 3.2 percent of the accounts receivable will prove worthless.

2. Suppose Allowance for Doubtful Accounts has a debit balance of $1,750 instead of a credit balance of $2,000, but all other account balances remain the same. Compute the amount to be charged to Uncollectible Accounts Expense under each assumption in item 1.

Analyze: If you were the owner of Dexter Company and wished to maximize profits reported for 2019, which method would you prefer to use?