Hanoi Company provides for Doubtful Account based on 2.5% of gross Account Receivable. The following data is
Question:
Hanoi Company provides for Doubtful Account based on 2.5% of gross Account Receivable. The following data is available for 2020
Credit sales during 2020 $4,500,000
Account Receivable 1,200,000
Allowance for Doubtful Accounts (1/1/2020) 37,000
Collections of accounts written off in a prior year
(Customer’s credit was re-established) 9,000
Customer accounts are written off as uncollectible
during 2020 33,200
Make the adjusting entry to record the Allowance for Doubtful Account on December 31, 2020.
Repeat part a, assuming that Allowance for Doubtful Account has the balance of 4,500 debits as of 1/1/2020.
According to part a, what is the balance for Cash Realizable Value as of December 31, 2020?
Discuss the reasons why the allowance method is preferable to the direct write-off method.