Question

w wwepo tu Gastu as Ul the end of that year? 10. Nuance Company had net credit sales for the year of $500,000. Nuance estimates that 2 percent of its net! credit sales will never be collected. a. Prepare the entry to record Nuance's bad debt expense for the year. b. Nuance had accounts receivable of $100,000 at the end of the year. Show how the net accounts receivable balance would be reported on the balance sheet. Assume that the allowance for doubtful accounts had an unadjusted credit balance at the end of the year of $1,000. c. Why is the accounts receivable balance shown at net rather than just showing the full amount? 11. Assume that Nuance, in number 10, used the percentage of receivables method to estimate uncollectible accounts instead of the percentage of sales method. Nuance assumes that 5 percent of accounts receivable will never be collected a. Prepare the entry to record Nuance's bad debt expense for the year. b. Show how the net accounts receivable balance would be reported on the balance sheet. c. Why are companies allowed to choose between the percentage of sales and the percentage of receivables method?

Answer 1

Answers for question Number 10 and 11 has been presented below
(a) Journal entry Bad debts a/c Dr 10000 to Allowance for doubtful debts a/c 10000 (Being 2% of net credit sales transferred to allowance for doubtful debts) (b) Extract of Balance sheet Assets Current Assets Accounts receivable 100000 Less: Allownace for doubtful debts -1000 99000 C) Due to future uncertainity of collection of accounts receivable, accounts receivable should be presented net of allowance for doubtful debts instead of gross amount.

Dr 11 (a) Bad debts a/c 5000 to Allowance for doubtful debts a/c 5000 (Being 5% of accounts receivable transferred to allowance for doubtful debts) (b) Extract of Balance sheet Assets Current Assets Accounts receivable Less: Allownace for doubtful debts 100000 -5000 95000 (c) Companies allowed to choose their own accounting policy based on past experience and certain factors of industry.