Allowance Method The Huntington Company, which has been in business for three ye

Question

Allowance Method The Huntington Company, which has been in business for three years, makes all of its sales on account and does not offer cash discounts. The firm's credit sales, collections from customers, and write-offs of uncollectible accounts for the three.year period are summarized below Accounts Written Off Year Sales Collections 2015 $600,000 $574,000 2016 770,000 760,000 017 850,000 814,000 4,200 6,900 ,300 Required a. If the Huntington Company had used the allowance method of recognizing credit losses and had provided for such losses at the rate of 1.3 percent of credit sales, what amounts in Accounts Receivable and the Allowance for Doubtful Accounts would appear on the firm's balance sheet at the end of 2017? What total amount of bad debts expense would have appeared on the firm's income statement during the three year period? Belance in Accounts Receivable at year end, 2017 Allowance for Doubrful Accounts Belance at year end 2017 Bad Debss Expense

Explanation / Answer

Solution 1:

Balance in accounts receivable at year end 2017 = $53,600

Allowance for doubful accounts balance at year end 2017 = $11,050

Bad debts expense:

2015 = $12,000

2016 = $9,110

2017 = $8,340

Solution 2:

Net amount of accounts receivables to be included in current assets = $128,000 - $4,000 = $124,000

Computation of Ending Accounts Receivables Particulars 2015 2016 2017 Opening Receivables $0.00 $21,800.00 $24,900.00 Add: Credit Sales $600,000.00 $770,000.00 $850,000.00 Less: Cash Collection $574,000.00 $760,000.00 $814,000.00 Less: Accounts Written off $4,200.00 $6,900.00 $7,300.00 Ending Accounts Receivables $21,800.00 $24,900.00 $53,600.00

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