Question

The balances of selected accounts of the Dexter Company on December 31, 2019, are given below:

Accounts Receivable	$	840,000
Allowance for Doubtful Accounts (credit)		2,900
Total Sales		9,940,000
Sales Returns and Allowances (total)		239,000

  
(Credit sales were $8,490,000. Returns and allowances on these sales were $199,000.)

Required:

1. Compute the amount to be charged to Uncollectible Accounts Expense under each of the following different assumptions:
   1. Uncollectible accounts are estimated to be 0.2 percent of net credit sales.
   2. Experience has shown that about 3.4 percent of the accounts receivable will prove worthless.
2. Suppose Allowance for Doubtful Accounts has a debit balance of $2,400 instead of a credit balance of $2,900, but all other account balances remain the same. Compute the amount to be charged to Uncollectible Accounts Expense under each assumption in item 1.

Analyze:
If you were the owner of Dexter Company and wished to maximize profits reported for 2019, which method would you prefer to use?

Answer 1

Answer :

Given data :

Accounts Receivable = $840,000
Allowance for Doubtful Accounts (credit) = $2,900
Total Sales = $ 9,940,000
Sales Returns and Allowances (total) = $239,000

1)a)Uncollectible accounts are estimated to be 0.2 percent of net credit sales.

Given data :

Net credit sale = 0.2%

Total credit sales = $ 8,490,000

Return amount = $ 1,99,000

Now,

Amount of uncollectible account expense = Net sale * (Total credit sales - Return amount)

= 0.2% * ($8,490,000 - 1,99,000)

= 0.0025 * 8291000

= $20728

Amount of uncollectible account expense = $ 20728

b)Experience has shown that about 3.4 percent of the accounts receivable will prove worthless.

   Accounts receivable (percentages) = 3.4%

Estimated account receivable = Account receivable (%) * Account receivable(Values)

= 3.4% * $ 8,40,000

=0.034 * $ 8,40,000

= $28560

   Estimated account receivable = $28560

2)a)In this answers are same as 1)a).

b)Estimated Accounts receivable = $28560

Allowance for Doubtful Accounts (credit) = $2,900

Accounts Receivable = $840,000

The amount to be charged to Uncollectible Accounts = Estimated Accounts receivable - Allowance for Doubtful Accounts (credit)

= $ 28,560 - $ 2,900

= $ 25,660

The amount to be charged to Uncollectible Accounts = $ 25,660

Total Amount = $ 20728 + $ 28,560

= $ 49,288

Total Amount = $ 49,288

Analyze :

The method that I used is Sales basis,because it gives highest income this year.