During 2014, SABA Company had net sales of $11,400,000. Most of the sales were o

Question

During 2014, SABA Company had net sales of

$11,400,000. Most of the sales were on credit. At the end of 2014, the balance of

Accounts Receivable was $1,400,000 and Allowance for Uncollectible Accounts had

a debit balance of $48,000. SABA Company’s management uses two methods of estimating

uncollectible accounts expense: the percentage of net sales method and the

accounts receivable aging method. The percentage of uncollectible sales is 1.5 percent

of net sales, and based on an aging of accounts receivable, the end-of-year uncollectible

account

Aging Method and Net Sales Method Contrasted

E5B. Accounting Connection During 2014, SABA Company had net sales of

$11,400,000. Most of the sales were on credit. At the end of 2014, the balance of

Accounts Receivable was $1,400,000 and Allowance for Uncollectible Accounts had

a debit balance of $48,000. SABA Company’s management uses two methods of estimating

uncollectible accounts expense: the percentage of net sales method and the

accounts receivable aging method. The percentage of uncollectible sales is 1.5 percent

of net sales, and based on an aging of accounts receivable, the end-of-year uncollectible

accounts total $140,000.

LO 1

LO 2

LO 2

LO 2

LO 2

Chapter Assignments 1

(Continued)

Prepare the year-end adjusting entry to record the uncollectible accounts expense

under each method. What will the balance of Allowance for Uncollectible Accounts be

after each adjustment? Why are the results different? Which method is likely to be more

reliable? Why

s total $140,000.

Explanation / Answer

Answer 1. Percentage of Uncollectible Accounts Journal Entry Date Particulars Dr. Amt. Cr. Amt. 2014 Bad Debt Expenses                                             Dr.          219,000 $11,400,000 X 1.50% + 48,000    To Allowance for Uncollectible Accounts          219,000 Aging of Accounts Receivable Journal Entry Date Particulars Dr. Amt. Cr. Amt. 2014 Bad Debt Expenses                                             Dr.          188,000 $48,000 + $140,000    To Allowance for Uncollectible Accounts          188,000 Answer 2. Balance of Allowance for Uncollectible Accounts after Adjustment: Under Percentage of Uncollectible Accounts - $219,000 - $48,000                             171,000 (Cr) Under Aging of Accounts Receivable - $188,000 - $48,000                             140,000 (Cr)

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