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, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account. Percentage of sales method: Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales. 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.

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Answer 1

Question

Chapter 8, Problem 8.2CP

(1) (a)

To determine

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, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

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 determine

To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.

(3)

To determine

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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For several years, Xtreme Co's sales have been on a "cash only" basis. On January 1, 2011, 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 1/2 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: Year Credit Sales Allowance for Doubtful Accounts 2011 4,000,000 5,000 2012 4,400,000 8,250 2013 4,800,000 10,200 2014 5,100,000 14,400 Laurie Jones, president of Xtreme Co., is concerned that the method used to account for and writeoff uncollectible receivables is unsatisfactory. She has asked for your advice in the analysis of past operations in this area and for recommendations for change. INSTRUCTION: Determine the amount of (a) the addition to Allowance for Doubtful Accounts and (b)…

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 ½ 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 4,400,000 20Y5 8,250 4,800,000 10,200 20Υ6 20Y7 5,100,000 14,400 (Continued)

For several years, EquiPrime Co.'s sales have been on a "cash only" basis. On January 1, 20Y2, however, EquiPrime 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 ¼ 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: Year Credit Sales Allowance forDoubtful Accounts 20Y2 $12,500,000 $12,800 20Y3 12,600,000 23,000 20Y4 12,800,000 34,000 20Y5 13,000,000 49,000 Mandy Pulaski, president of EquiPrime Co., is concerned that the method used to account for and write off uncollectible receivables is unsatisfactory. She has asked for your advice in the analysis of past operations in this area…

Answer 2

Question

Chapter 8, Problem 8.2CP

(1) (a)

To determine

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, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

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 determine

To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.

(3)

To determine

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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Answer 3

Question

Chapter 8, Problem 8.2CP

(1) (a)

To determine

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, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

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 determine

To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.

(3)

To determine

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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Answer 4

Question

Chapter 8, Problem 8.2CP

(1) (a)

To determine

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, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

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 determine

To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.

(3)

To determine

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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Answer 5

Chapter 8, Problem 8.2CP

(1) (a)

To determine

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, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

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 determine

To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.

(3)

To determine

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.

Answer 6

Chapter 8, Problem 8.2CP

(1) (a)

To determine

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, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

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.

Answer 7

Chapter 8, Problem 8.2CP

(1) (a)

To determine

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, bad debts expenses are estimated and recorded prior to the occurrence of actual bad debt, in compliance with matching principle by using the allowance for doubtful account.

Percentage of sales method:

Credit sales are recorded by debiting (increasing) accounts receivable account. The bad debts is a loss incurred out of credit sales, hence uncollectible accounts can be estimated as a percentage of credit sales or total sales.

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.

Answer 8

(2)

To determine

To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.

Answer 9

(2)

To determine

To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.

Answer 10

(3)

To determine

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.

Answer 11

(3)

To determine

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.

Answer 12

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Answer 15

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Solution Summary: The author explains the allowance method for accounting bad debt expense, where amount of uncollectible accounts receivables are estimated and recorded at the end of particular period.

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To advise: Person LJ, whether the estimate of ½ of 1% of credit sales appears reasonable.

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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