On January 1, Xtreme Co. began offering credit with terms of n/30. Uncollectible accounts are estimated to be 1% of credit sales, which is the average for the industry. The CEO, Todd Hurley, has no background in accounting and is struggling to understand the allowance method. Write a brief memo to Todd, explaining the allowance method and how this information is reported in the financial statements. CP 9-5 Estimate uncollectible accounts For several years, Xtreme Co.'s sales have been on a "cash only" basis. On January 1, 20Y4, however, Xtreme Co. began offering credit on terms of n/30. The amount of the adjusting entry to record the estimated uncollectible receivables at the end of each year has been 2 of 1% of credit sales, which is the rate reported as the average for the industry. Credit sales and the year-end credit balances in Allowance for Doubtful Accounts for the past four years are as follows: Allowance for Doubtful Accounts Credit Sales Year $ 5,000 $4,000,000 20Y4 8,250 4,400,000 20Y5 10,200 4,800,000 20Y6 14,400 5,100,000 20Υ7 (Continued) er 9 Receivables Laurie Jones, president of Xtreme Co., is concerned that the method used to account ad- your for and write off uncollectible receivables is unsatisfactory. She has asked for vice in the analysis of past operations in this area and for recommendations for change. 1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and (b) the accounts written off for each of the four years. Advise Laurie Jones as to whether the estimate of ½ of 1% of credit sales 2. a. appears reasonable. Assume that after discussing (a) with Laurie Jones, she asked you what action might be taken to determine what the balance of Allowance for Doubtful Accounts should be at December 31, 20Y7, and what possible changes, if any, you e recommend in accounting for uncollectible receivables. How would you responu b.
On January 1, Xtreme Co. began offering credit with terms of n/30. Uncollectible accounts are estimated to be 1% of credit sales, which is the average for the industry. The CEO, Todd Hurley, has no background in accounting and is struggling to understand the allowance method. Write a brief memo to Todd, explaining the allowance method and how this information is reported in the financial statements. CP 9-5 Estimate uncollectible accounts For several years, Xtreme Co.'s sales have been on a "cash only" basis. On January 1, 20Y4, however, Xtreme Co. began offering credit on terms of n/30. The amount of the adjusting entry to record the estimated uncollectible receivables at the end of each year has been 2 of 1% of credit sales, which is the rate reported as the average for the industry. Credit sales and the year-end credit balances in Allowance for Doubtful Accounts for the past four years are as follows: Allowance for Doubtful Accounts Credit Sales Year $ 5,000 $4,000,000 20Y4 8,250 4,400,000 20Y5 10,200 4,800,000 20Y6 14,400 5,100,000 20Υ7 (Continued) er 9 Receivables Laurie Jones, president of Xtreme Co., is concerned that the method used to account ad- your for and write off uncollectible receivables is unsatisfactory. She has asked for vice in the analysis of past operations in this area and for recommendations for change. 1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and (b) the accounts written off for each of the four years. Advise Laurie Jones as to whether the estimate of ½ of 1% of credit sales 2. a. appears reasonable. Assume that after discussing (a) with Laurie Jones, she asked you what action might be taken to determine what the balance of Allowance for Doubtful Accounts should be at December 31, 20Y7, and what possible changes, if any, you e recommend in accounting for uncollectible receivables. How would you responu b.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:On January 1, Xtreme Co. began offering credit with terms of n/30. Uncollectible accounts
are estimated to be 1% of credit sales, which is the average for the industry. The CEO,
Todd Hurley, has no background in accounting and is struggling to understand the
allowance method.
Write a brief memo to Todd, explaining the allowance method and how this
information is reported in the financial statements.
CP 9-5
Estimate uncollectible accounts
For several years, Xtreme Co.'s sales have been on a "cash only" basis. On January 1, 20Y4,
however, Xtreme Co. began offering credit on terms of n/30. The amount of the adjusting
entry to record the estimated uncollectible receivables at the end of each year has been
2 of 1% of credit sales, which is the rate reported as the average for the industry. Credit
sales and the year-end credit balances in Allowance for Doubtful Accounts for the past
four years are as follows:
Allowance for
Doubtful Accounts
Credit Sales
Year
$ 5,000
$4,000,000
20Y4
8,250
4,400,000
20Y5
10,200
4,800,000
20Y6
14,400
5,100,000
20Υ7
(Continued)
Transcribed Image Text:er 9 Receivables
Laurie Jones, president of Xtreme Co., is concerned that the method used to account
ad-
your
for and write off uncollectible receivables is unsatisfactory. She has asked for
vice in the analysis of past operations in this area and for recommendations for change.
1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and
(b) the accounts written off for each of the four years.
Advise Laurie Jones as to whether the estimate of ½ of 1% of credit sales
2. a.
appears reasonable.
Assume that after discussing (a) with Laurie Jones, she asked you what action
might be taken to determine what the balance of Allowance for Doubtful Accounts
should be at December 31, 20Y7, and what possible changes, if any, you e
recommend in accounting for uncollectible receivables. How would you responu
b.
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