PROBLEM 1

Mendsaikhan Trading Company is contemplating on which method to use for the recognition of its Allowance for Doubtful Accounts Percentage of Sales or Percentage of Receivables Method.

If the company uses percentage of sales, they thought of using Net Credit Sales as the basis for assigning 1.5% of probability of non-collection.

If the company uses percentage of receivables, they will have to age their receivables according to past due dates. Further investigation reveals the following information.

	Accounts Receivable	% of uncollectibility
Current	300,000	0
30 to 60 days	200,000	6
60 to 90 days	90,000	10
90 to 180 days	40,000	25
More than 180 days	20,000	50

All sales are made on credit therefore, total credit sales is $650,000. During the year, there were Sales Returns and Allowances amounting to $35,000; and the company provided for Sales Discounts of $20,000.

Required:

1. What should be the ending balance of the Allowance for Doubtful Accounts (ADA) using Percentage of Receivables method?
2. What amount should be debited to bad debts expense as an adjusting entry to bring ADA above (1) to its correct balance?
3. What is the Cash Realizable Value of the Accounts Receivable account for balance sheet presentation purposes following 1 and 2 above?
4. Assuming the company uses % of sales method with Net Credit Sales as the basis, what amount should be debited to Bad Debt Expense to bring Allowance for Doubtful accounts to its correct balance?
5. What should be the ending balance of the Allowance for Doubtful Accounts (ADA) using Percentage of Sales method?
6. What is the Cash Realizable Value of the Accounts Receivable account (percentage of sales) for balance sheet presentation purposes following 4 and 5 above?