Concept explainers
(1) (a)
Allowance method:
It is a method for accounting bad debt expense, where amount of uncollectible accounts receivables are estimated and recorded at the end of particular period. Under this method,
Percentage of sales method:
Credit sales are recorded by debiting (increasing)
It is a method of estimating the bad debts (expected loss on extending credit), by multiplying the expected percentage of uncollectible with the total amount of net credit sale (or total sales) for a specific period. Under percentage of sales method, estimated bad debts would be treated as a bad debt expense of the particular period.
the amount of (a) the addition to allowance for doubtful accounts and (b) the accounts written off for each of the four years.
(2)
To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.
(3)
To discuss: The action, which is required to determine the required balance in allowance for doubtful accounts by December 31, 2016, and suggest the possible changes for the recommended accounting for uncollectible receivables.

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Chapter 8 Solutions
EBK FINANCIAL & MANAGERIAL ACCOUNTING
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