Question

Uncollectible Accounts Receivable: [201280Q5022320] Merle Company sells only on account and had a balance in its Accounts Receivable [AR] account at the start of Year 2 of $1,300. The balance in the Allowance for Uncollectible Accounts [AUA) at the start of Year 2 was $85. In Year 2, the firm had credit sales of $6,700 and collections on account of $5,600. Write-offs and recoveries of previous write-offs in Year 2 were $360 and $35, respectively. In Year 3, the firm had credit sales of $7,900 and collections on account of $7,200. Write-offs and recoveries of previous write-offs in Year 3 were $410 and $45, respectively. When using the percentage of sales method, assume that Merle has properly estimated that 5% of its credit sales in Years 2 and 3 will be uncollectible. Alternatively, when using the aging method, assume the firm had estimated at the end of Year 1 that $1,215 of its AR would be collectible. One year later, at the end of Year 2, the firm's management properly estimated that the firm would not be able to collect $110 of its AR. At the end of Year 3, the firm estimated that the firm would be able to collect $2,180 of its AR balance. Required: $ _ Determine the carrying value of AR for Merle at the end of Year 2 when using the percentage of sales method. Determine the balance in the AUA account at the end of Year 3 when using the percentage of sales method. $ _ Determine the carrying value of AR for Merle at the end of Year 2 when using the aging method. Determine the balance in AUA for Merle at the end of Year 3 when using the aging method. Mwh 022320

Answer 1

Balance in accounts receivable at the end of year 2 under percentage of sales method is $1,740.

Balance in allowance for uncollectible accounts at the end of year 3 under percentage of sales method is $735.

Balance in accounts receivable at the end of year 2 under aging method is $1,965.

Balance in allowance for uncollectible accounts at the end of year 3 under aging method is $115.

Supporting calculations:

Percentage of sales method:
Accounts Receivable		Allowance for Uncollectible Accounts
Year 2:		Year 2:
Beginning balance	$1,300	Beginning balance	$85
Add: Credit sales	$6,700	Less: Recovery of previous debts	($35)
Less: Collections on account	($5,600)	Add: Bad debts	$335
Less: Write-offs	($360)	Ending balance	$385
Add: Recovery of previous write-offs	$35
Less: Bad debts ($6,700*5/100)	($335)
Ending balance	$1,740
Year 3:		Year 3:
Beginning balance	$1,740	Beginning balance	$385
Add: Credit sales	$7,900	Less: Recovery of previous debts	($45)
Less: Collections on account	($7,200)	Add: Bad debts	$395
Less: Write-offs	($410)	Ending balance	$735
Add: Recovery of previous write-offs	$45
Less: Bad debts ($7,900*5/100)	($395)
Ending balance	$1,680
Aging Method:
Accounts Receivable		Allowance for Uncollectible Accounts
Year 2:		Year 2:
Beginning balance	$1,300	Beginning balance	$85
Add: Credit sales	$6,700	Less: Recovery of previous debts	($35)
Less: Collections on account	($5,600)	Add: Bad debts	$110
Less: Write-offs	($360)	Ending balance	$160
Add: Recovery of previous write-offs	$35
Less: Bad debts	($110)
Ending balance	$1,965
Year 3:		Year 3:
Beginning balance	$1,965	Beginning balance	$160
Add: Credit sales	$7,900	Less: Recovery of previous debts	($45)
Less: Collections on account	($2,180)	Add: Bad debts	$0
Less: Write-offs	($410)	Ending balance	$115
Add: Recovery of previous write-offs	$45
Ending balance	$7,320