In October 2019, you acquired a grocery store. To compete with the large grocery chains, you...
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In October 2019, you acquired a grocery store. To compete with the large grocery chains, you decide to offer some customers credit terms of 30 days. Total sales for the year ended September 30, 2020 were $900,000, of which $250,000 were on credit. Five customers declared bankruptcy or left town without a forwarding address, and their accounts (which totaled $4,300) were written off. The balance of the accounts receivable, after the write off, was $24,700. Total sales for the next fiscal year were $1,060,00o, of which $760,000 were for cash. Six customers' accounts totaling $5,400 were written off, and the ending balance in the accounts receivable was S31,900 as at September 30, 2021. Assume for questions 3 to 6 that the percentage of credit sales method is used to estimate bad debts expense for both fiscal years, 2020 and 2021. Industry statistics indicate that bad debts average 3% of credit sales. (Hint: use T-accounts to keep track of the various details.) Assume for questions 7 to 9 that the aging of accounts receivable method is used to estimate bad debts expense. You prepare the following analysis of aged accounts receivable at the end of the fiscal years, 2020 and 2021. (Hint: use T-accounts to keep track of the various details.) Analysis of Aged Accounts Receivable Not Yet Past Due Due 1- 60 Over 60 Current Total days days Accounts receivable, 9/30/2020 Accounts receivable, 9/30/2021 Estimated % uncollectible S18,400 $4,700 S1.600 $24,700 24,300 5,600 2,000 $31.900 10% 40% 75% 9 of 20 Marks Which of the following statements is incorrect when arguing in favour of using the aging of accounts receivable method instead of the percentage of credit sales method? O A. The aging of accounts receivable method generally results in a more accurate valuation of the net accounts receivable on the statement of financial position. B. The aging of accounts receivable method matches bad debts expense with credit sales in the same period. oC. The aging of accounts receivable method takes into account past experience by adjusting for previous under- or overstatement of the allowance account. OD. The aging of accounts receivable method is more difficult to implement than the percentage of credit sales method. Unsure In October 2019, you acquired a grocery store. To compete with the large grocery chains, you decide to offer some customers credit terms of 30 days. Total sales for the year ended September 30, 2020 were $900,000, of which $250,000 were on credit. Five customers declared bankruptcy or left town without a forwarding address, and their accounts (which totaled $4,300) were written off. The balance of the accounts receivable, after the write off, was $24,700. Total sales for the next fiscal year were $1,060,00o, of which $760,000 were for cash. Six customers' accounts totaling $5,400 were written off, and the ending balance in the accounts receivable was S31,900 as at September 30, 2021. Assume for questions 3 to 6 that the percentage of credit sales method is used to estimate bad debts expense for both fiscal years, 2020 and 2021. Industry statistics indicate that bad debts average 3% of credit sales. (Hint: use T-accounts to keep track of the various details.) Assume for questions 7 to 9 that the aging of accounts receivable method is used to estimate bad debts expense. You prepare the following analysis of aged accounts receivable at the end of the fiscal years, 2020 and 2021. (Hint: use T-accounts to keep track of the various details.) Analysis of Aged Accounts Receivable Not Yet Past Due Due 1- 60 Over 60 Current Total days days Accounts receivable, 9/30/2020 Accounts receivable, 9/30/2021 Estimated % uncollectible S18,400 $4,700 S1.600 $24,700 24,300 5,600 2,000 $31.900 10% 40% 75% 9 of 20 Marks Which of the following statements is incorrect when arguing in favour of using the aging of accounts receivable method instead of the percentage of credit sales method? O A. The aging of accounts receivable method generally results in a more accurate valuation of the net accounts receivable on the statement of financial position. B. The aging of accounts receivable method matches bad debts expense with credit sales in the same period. oC. The aging of accounts receivable method takes into account past experience by adjusting for previous under- or overstatement of the allowance account. OD. The aging of accounts receivable method is more difficult to implement than the percentage of credit sales method. Unsure
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