From inception of operation in 2017, Danica Company carried no allowance for doubtful accounts. Uncollectible receivables were expensed as written off and recoveries were credited to income as collected. On March 1, 2021, after the 2020 financial statements were issued, management recognized that Danica's accounting policy with respect to doubtful accounts was not correct and determined that an allowance for doubtful accounts was necessary. A policy was established to maintain an allowance for doubtful accounts based on Danica's historical bad debt loss percentage applied to year end accounts receivable. The historical bad debt loss percentage is to be recomputed each year based on the relationship of net write offs to credit sales for all available past years up to a maximum of five years. Information from Danica's records for five years is as follows:

From inception of operation in 2017, Danica Company carried no allowance for doubtful accounts. Uncollectible receivables were expensed as written off and recoveries were credited to income as collected. On March 1, 2021, after the 2020 financial statements were issued, management recognized that Danica's accounting policy with respect to doubtful accounts was not correct and determined that an allowance for doubtful accounts was necessary. A policy was established to maintain an allowance for doubtful accounts based on Danica's historical bad debt loss percentage applied to year end accounts receivable. The historical bad debt loss percentage is to be recomputed each year based on the relationship of net write offs to credit sales for all available past years up to a maximum of five years. Information from Danica's records for five years is as follows:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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