On February 28, Tradewinds Sailing Supplies had a $75,000 debit balance in Accou

Question

On February 28, Tradewinds Sailing Supplies had a $75,000 debit balance in Accounts Receivable and a $2,200 credit balance in Allowance for Uncollectible Accounts. During March, Tradewinds made Sales on account, $410,000 Collections on account, $419,000 Write-offs of uncollectible receivables, $7,000 Requirements 1. Record sales and collections on account. Then record uncollectible-account expense and write-offs of customer accounts using the allowance method. Uncollectible-account expense was estimated at 2% of credit sales. Show all March activity in Accounts Receivable, Allowance for Uncollectible Accounts, and Uncollectible-Account Expense (post to these T-accounts). 2. Suppose Tradewinds used a different method to account for uncollectible receivables. Record sales and collections on account. Then record uncollectible-account expense for March using the direct writeoff method. Post to Accounts Receivable and Uncollectible-Account Expense and show their balances at March 31. 3. What amount of uncollectible-account expense would Tradewinds report on its March income statement under each of the two methods? Which amount better matches expense with revenue? Give your reason. 4. What amount of net accounts receivable would Tradewinds report on its March 31 balance sheet under each of the two methods? Which amount is more realistic? Give your reason.

Explanation / Answer

Beginning balance in AR is 75,000. Since they collected 9,000 more than they sold, this reduces the AR to 66000. Then 7,000 write-offs then reduce AR to 59,000. The 7,000 in write-offs also reduces the allowance account to zero. So at the end of the year AR is 96,000 and the allowance for doubtful accounts is 2200. since they expect 2% of the balance in AR to not be collected, 59,000*0.02 = 1180, so they will want the allowance account to equal 1180. Which will mean a bad debt expense of 0.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

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