EXERCISE: PERCENTAGE OF CREDIT SALES METHOD Summary: Annual Credit Sales and Col

Question

EXERCISE: PERCENTAGE OF CREDIT SALES METHOD Summary: Annual Credit Sales and Collections 3rd STEP FYE 2009 FYE 2011 FYE 2012 3,925,000 5,100,000 20,000,000 22,500,000 75,000) (21,940,000) 50,000) 1250,000) ,410,000 Begninning Balance A/R 3,080,000 5,000,000 12,500,000 15,000,000 (10,500,000) (16,000,000) (18,7 Credit Sales Collections on AMR Direct Charge offs 5,100,000 Ending Balance A/R Allowance for Doubtful Accounts 5,000,000 124,900 3,925,000 Net Realizable Value 2nd Step: Allowance for Doubtful Accounts Total Accounts Receivable Beginning Balance Less: Write Offs Add: Bad Debt Expense Total Allowance Account 2nd STEP fve 2009e 2010fye 2011 fye 2011fye 2012 92.400 (80,000) 500 124,900 124,900 1st Step: Calculation of Allowance: 0.9% of Credit Sales 1st STEP Credit Sales 12 Bad Debt Expense 0.9% 112,500 EXERCISE: PERCENTAGE OF RECEIVABLES METHOD Annual Breakdown of Credit Sales and Collections FYE.2009 FYE.2010 FYE 2012 Begninning Balance A/R Credit Sales Collections on A/R Direct Charge offs Ending Balance A/R Allowance for Doubtful Accounts Net Realizable Value 3,080,000 5,000,000 12,500,000 15,000,000 3,925,000 5,100,000 20,000,000 22,500,000 (10,500,000) (16,000,000) 18,775,000) (21,940,000) 50,000) (250,000) 5,410,000 (80,000) (75,000 5,000,000 5,100,000 3% 150,000 1st STEP 4,850,000 Allowance for Doubtful Accounts Total Accounts Receivable Beginning Balance Less: Write Offs Add: Bad Debt Expense Total Allowance Account 2012 92,400 (80,000) 137,600 150,000 150,000 2nd STEP

Explanation / Answer

Answer 1. Calulation of Allowance - 0.90% of Credit Sales FYE. 2009 FYE. 2010 FYE. 2011 FYE. 2012 Credit Sales      12,500,000.00      15,000,000.00      20,000,000.00      22,500,000.00 Bad Debt Expense - 0.90% X Credit Sales            112,500.00            135,000.00            180,000.00            202,500.00 Allowance for Doubtful Accounts FYE. 2009 FYE. 2010 FYE. 2011 FYE. 2012 Beginning Balance              92,400.00            124,900.00            184,900.00            314,900.00 Less: Write Offs            (80,000.00)            (75,000.00)            (50,000.00)         (250,000.00) Add: Bad Debt Expense            112,500.00            135,000.00            180,000.00            202,500.00 Total Allowance Method            124,900.00            184,900.00            314,900.00            267,400.00 Summary: Annual Credit Sales & Collection FYE. 2009 FYE. 2010 FYE. 2011 FYE. 2012 Beginning Balance - A/R        3,080,000.00        5,000,000.00        3,925,000.00        5,100,000.00 Credit Sales      12,500,000.00      15,000,000.00      20,000,000.00      22,500,000.00 Collections on A/R (10,500,000.00) (16,000,000.00) (18,775,000.00) (21,940,000.00) Direct Charges offs.            (80,000.00)            (75,000.00)            (50,000.00)         (250,000.00) Ending Balance A/R        5,000,000.00        3,925,000.00        5,100,000.00        5,410,000.00 Allowance for Doubtful Accounts         (124,900.00)         (184,900.00)         (314,900.00)         (267,400.00) Net Realizable Value        4,875,100.00        3,740,100.00        4,785,100.00        5,142,600.00 Answer 2. - Percentage of Receivable Method Summary: Annual Credit Sales & Collection FYE. 2009 FYE. 2010 FYE. 2011 FYE. 2012 Beginning Balance - A/R        3,080,000.00        5,000,000.00        3,925,000.00        5,100,000.00 Credit Sales      12,500,000.00      15,000,000.00      20,000,000.00      22,500,000.00 Collections on A/R (10,500,000.00) (16,000,000.00) (18,775,000.00) (21,940,000.00) Direct Charges offs.            (80,000.00)            (75,000.00)            (50,000.00)         (250,000.00) Ending Balance A/R        5,000,000.00        3,925,000.00        5,100,000.00        5,410,000.00 Allowance for Doubtful Accounts - 3%         (150,000.00)         (117,750.00)         (153,000.00)         (162,300.00) Net Realizable Value        4,850,000.00        3,807,250.00        4,947,000.00        5,247,700.00 Allowance for Doubtful Accounts FYE. 2009 FYE. 2010 FYE. 2011 FYE. 2012 Beginning Balance              92,400.00            150,000.00            117,750.00            153,000.00 Less: Write offs            (80,000.00)            (75,000.00)            (50,000.00)         (250,000.00) Add: Bad Debt Expense (Bal Fig.)            137,600.00              42,750.00              85,250.00            259,300.00 Total Allowance Account            150,000.00            117,750.00            153,000.00            162,300.00

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