At the end of the year, Smith Company has the following information available Cr

Question

At the end of the year, Smith Company has the following information available Credit sales Sales returns and allowances Accounts Receivable Allowance for Uncollectible Accounts(Debit) $1,000,000 10,000 560,000 42,000 The company uses the percent -of-sales method to estimate uncollectible accounts and has not prepared the year-end adjusting entry for Uncollectible-Account Expense. In the prior year, uncollectible accounts were estimated at 1% of credit sales. What action should Smith Company take in regards to uncollectible accounts at the end of the current year? O A. increase the percentage in the percent - of- sales method O B. reexamine credit policies ° C. change to the direct write-off method O D. A and B

Explanation / Answer

As 1% of credit sales 1,000,000 * 1% = $10,000

which is far less that allowance for uncollectible accounts balance which is 42,000

So here either the percenatge is to be change or the policy is to be reexamined

So correct is D

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