for the year accounting records of Daffodil Company has the following informatio
ID: 2550502 • Letter: F
Question
for the year accounting records of Daffodil Company has the following information available ending December 31, 20X3. The DAFFODIL COMPANY SELECTED FINANCIAL INFORMATION FOR YEAR ENDING DECEMBER 31, 20x3 Cash sales Sales on account Accounts Receivable, 1/1/X3 Accounts Receivable, 12/31/X3 Allowance For Doubtful Accounts, 1/1/X3 (normal balance) Accounts written off as uncollectible during 20X3 750,000 575,000 225,000 205,000 1,500 4,200 Management feels that the current estimates used for estimating bad debts are inaccurate. The company is considering the following different alternatives to estimating bad debts. DAFFODIL COMPANY VARIOUS ALTERNATIVES FOR ESTIMATING BAD DEBT EXPENSE (a) | Bad debt expense is approximately 0.75% of credit sales (b) | Bad debt expense is approximately 0.40% of total sales. (c) Uncollectible accounts will be 1.80% of the year end accounts receivable balance. (d) An aging ofaccounts receivable indicates that 60% of the receivables balance would inc a 1.25% loss and the remainder would incur a 6.25% loss.Explanation / Answer
a. Bad debt expense is approximately 0.75% of credit sales:
1. Bad debt expense = $ 575,000 x 0.75% = $ 4,312.50
2.
3. Ending balance of Allowance for Doubtful Accounts = $ 1,500 + $ 4,312.50 - $ 4,200 = $ 1,612.50.
b. Bad debt expense is approximately 0.40% of total sales:
1. Total sales = $ 750,000 + $ 575,000 = $ 1,325,000.
Bad debt expense = $ 1,325,000 x 0.40 % = $ 5,300.
2.
3. Ending balance of Allowance for Doubtful Accounts = $ 1,500 + $ 5,300 - $ 4,200 = $ 2,600.
c. Uncollectible accounts will be 1.80 % of the year end accounts receivable balance:
1. Bad debt expense = Uncollectibles written off + Required ending Balance - Beginning Balance = $ 4,200 + $ 205,000 x 1.80 % - $ 1,500 = $ 6,390.
2.
3. Ending balance of Allowance for Doubtful Accounts = $ 205,000 x 1.80% = $ 3,690
d.
1. Bad debt expense = $ 4,200 + $ 6,662.50 - $ 1,500 = $ 9,362.50.
2.
3. Ending balance in Allowance for Doubtful Accounts = $ 205,000 x 60% x 1.25% + $ 205,000 x 40% x 6.25% = $ 1,537.50 + $ 5,125 = $ 6,662.50
Account Title Debit Credit $ $ 12/31/20X3 Bad Debt Expense 4,312.50 Allowance for Doubtful Accounts 4,312.50Related Questions
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