Question

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

Accounts Receivable $ Allowance for Doubtful Accounts (credit) 860,000 3,100 9,960,000 241,000 Total Sales Sales Returns and Allowances (total)

(Credit sales were $8,510,000. Returns and allowances on these sales were $201,000.)

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 3.2 percent of the accounts receivable will prove worthless.
2. Suppose Allowance for Doubtful Accounts has a debit balance of $2,600 instead of a credit balance of $3,100,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

1.

credit sales	8510000
Less: returns and allowances on credit sales	201000
Net credit sales	8309000
estimated loss rate	0.002
Amount to be charged to uncollectible account expense	13518$

8309000*0.2%=16618

however there is already a balance of 3100$

so expense charged would be = 16618-3100

=13518$

1B

ACCOUNT RECEIVABLE ESTIMATED UNCOLLECTIBLE	27520$[860000*3.2%]
LESS BEGINNING BALANCE OF ALLOWANCE FOR DOUBTFUL AACOUNT	(3100)
AMOUNT TO BE CHARGED TO UNCOLLECTIBLE ACCOUNT	24420

2A

credit sales	8510000
Less: returns and allowances on credit sales	201000
Net credit sales	8309000
estimated loss rate	0.002
Amount to be charged to uncollectible account expense	16118$

8309000*0.002=16618

ALLOWANCE HAVE DEBIT BALANCE = 2600

SO WIL HAVE TO CREDIT IT BY 2600 AND 13518 TO AVAIL 13518$ AS CREDIT BALANCE

=13518+2600=16118

2B.

ACCOUNT RECEIVABLE ESTIMATED UNCOLLECTIBLE	27520$[860000*3.2%]
BEGINNING BALANCE OF ALLOWANCE FOR DOUBTFUL AACOUNT	2600
AMOUNT TO BE CHARGED TO UNCOLLECTIBLE ACCOUNT	30120$

ANALYZE

AS WE CAN SEE THAT 1A HAS LOWEST AMOUNT ($13518$)CHARGED AS AN EXPENSE IN UNCOLLECTIBLE

I WOULD USE 1A TO MAXIMIZE PROFIT