Chapter 7, Problem 8E Bookmark Show all steps: ON The credit manager of Montour

Question

Chapter 7, Problem 8E Bookmark Show all steps: ON The credit manager of Montour Fuel has gathered the following information about the company's accounts receivable and credit losses during the current year. $8,000,000 1.750,000 Net credit sales for the year...._.................................... Uncollectible accounts recelvable: Actually wntten off during the year Estimated portion of year-end recelvables expected to prove . $96,000 Prepare one journal entry summarizing the recognition of uncollectible accounts expense for the entire year under each of the following independent assumptions. a. Uncollectible accounts expense is estimated at an amount equal to 2.5 percent of net credit sales b. Uncollectible accounts expense is recognized by adjusting the balance in the Allowance for Doubtful Accounts to the amount indicated in the year-end aging schedule. The balance in the allowance account at the beginning of the current year was $25,000. (Consider the effect of the write-offs during the year on the balance in the Allowance for Doubtful Accounts.) c. The company uses the direct write-off method of accounting for uncollectible accounts d. Which of the three methods gives investors and creditors the most accurate assessment of a company's liquidity? Defend your answer

Explanation / Answer

a) Accounting titles & explanations Debit Credit Bad debts expense 200000 allowance for uncollectible accounts 200000 (8,000,000*2.5%) b) Bad debts expense 155000 allowance for uncollectible accounts 155000 (84,000 +(96000-25000) c) Bad debts expense 96,000 Account receivable 96,000 d) the second approach is better as it based on matchin principle and is based on aging schedule and hence provide better liquidity postion than the income statement appoach which is simply based on percentage of sales ,also income statement approach does not take into account the balance in allowance account

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.