Brecha Hogan is president of Hogan Company, a manufacturer of toys for children. For the past 10 years, the company has sold its product to both wholesale and retail dealers of toys in the northeast United States. Over the years, the company has come to know its customers well. While all sales are made on credit, few credit losses have occurred. The company's experience has shown that an annual provision for uncollectible accounts of 0.3 of 1 percent of sales is adequate in the old territory. Early in 20X1, Hogan Company decided to expand and develop a new sales base in the southeastern United States. Hogan was pleased when credit sales of $800,000 were achieved in the new territory during the year. To achieve this level of sales and get a foothold in the new territory, though, credit was allowed to some customers with lower credit ratings than had been granted in the past. Given its liberal credit policies in the new territory, Hogan estimates that the provision in the new territory should be 4% above actual first year's losses in the initial period of development. The credit losses connected with sales in the southeast became apparent by the end of 20X1. The following losses from new territory customers had been identified before year-end: 1. On September 30, it was determined that nothing could be collected from Bedford Toy Outlets, which owed Hogan $88,000. The account was written off. 2. On December 10, another new customer, Forever Young Fun Shops, which owed Hogan $220,000, entered receivership. On that date, Hogan was offered, and accepted, a check for $110,000 in final settlement of the debt. The balance was charged off. 3. On December 18, Technology Toys went out of business, and no collection of the $26,800 owed Hogan is anticipated. The account was charged off. The following additional information about the old and new territory became available on December 31: ■ Sales in the old territory totaled $25,120,000 in 20X1. ■ Sales in the new territory totaled $800,000 in 20X1. ■ Accounts receivable of $90,400 attributed to customers in the old sales territory were determined to be uncollectible and were written off.

Brecha Hogan is president of Hogan Company, a manufacturer of toys for children. For the past 10 years, the company has sold its product to both wholesale and retail dealers of toys in the northeast United States. Over the years, the company has come to know its customers well. While all sales are made on credit, few credit losses have occurred. The company's experience has shown that an annual provision for uncollectible accounts of 0.3 of 1 percent of sales is adequate in the old territory. Early in 20X1, Hogan Company decided to expand and develop a new sales base in the southeastern United States. Hogan was pleased when credit sales of $800,000 were achieved in the new territory during the year. To achieve this level of sales and get a foothold in the new territory, though, credit was allowed to some customers with lower credit ratings than had been granted in the past. Given its liberal credit policies in the new territory, Hogan estimates that the provision in the new territory should be 4% above actual first year's losses in the initial period of development. The credit losses connected with sales in the southeast became apparent by the end of 20X1. The following losses from new territory customers had been identified before year-end: 1. On September 30, it was determined that nothing could be collected from Bedford Toy Outlets, which owed Hogan $88,000. The account was written off. 2. On December 10, another new customer, Forever Young Fun Shops, which owed Hogan $220,000, entered receivership. On that date, Hogan was offered, and accepted, a check for $110,000 in final settlement of the debt. The balance was charged off. 3. On December 18, Technology Toys went out of business, and no collection of the $26,800 owed Hogan is anticipated. The account was charged off. The following additional information about the old and new territory became available on December 31: ■ Sales in the old territory totaled $25,120,000 in 20X1. ■ Sales in the new territory totaled $800,000 in 20X1. ■ Accounts receivable of $90,400 attributed to customers in the old sales territory were determined to be uncollectible and were written off.

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter14: Adjustments For A Merchandising Business

Section: Chapter Questions

Problem 1CP: Block Foods, a retail grocery store, has agreed to purchase all of its merchandise from Square...

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