Problem $1(10$ Points$)$

For several years, Vought Co$.$s sales have been on a $$cash only$$ basis. On January $1,2020,$ however, Vought Co$.$ began offering credit on terms of n$/30.$ The amount of the adjusting entry to record the estimated uncollectible receivables at the end of each year has been $0\mathrm{.}25\%$ of credit sales, which is the rate reported as the average for the industry. Credit sales and the year$-$end balances in the Allowance for Doubtful Accounts for the past four years are as follows:$$

Year$$

Credit Sales$$

Allowance for Doubtful Accounts$$

$2020$

$$12,500,000$

$$12,800$

$2021$

$$12,600,000$

$$23,000$

$2022$

$$12,800,000$

$$34,000$

$2023$

$$13,000,000$

$$49,000$

$$

The president of Vought Co$.$ is concerned that the method used to account for and write off uncollectible receivables is unsatisfactory. She has asked for your advice in the analysis of past operations in this area and for recommendations for change.$$

Determine the amount of the addition to Allowance for Doubtful Accounts for each of the prior years.$$

What amount of accounts receivable was written off in each of the $4$ years?$$

Advise the president as to whether the estimate of $$ of $1\%$ of credit sales appears reasonable.$$

Suppose that after discussing your answer to $($c$)$ the president asked you what action might be taken to determine what the balance of Allowance for Doubtful Accounts should be at December $31,2024,$ and what possible changes, if any, you might recommend in accounting for uncollectible receivables. How would you respond?$$

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