Question

The balances of selected accounts of the Dexter Company on December 31, 2019, are given below $ Accounts Receivable Allowance for Doubtful Accounts (credit) Total Sales Sales Returns and Allowances (total) 910,089 3,600 19,810,eee 246,000 (Credit sales were $8,560,000. Returns and allowances on these sales were $206,000.) Required: 1. Compute the amount to be charged to Uncollectible Accounts Expense under each of the following different assumptions a. Uncollectible accounts are estimated to be 0.3 percent of net credit sales. b. Experience has shown that about 3.3 percent of the accounts receivable will prove worthless 2. Suppose Allowance for Doubtful Accounts has a debit balance of $3,100 instead of a credit balance of $3,600, 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 complete this question by entering your answers in the tabs below.

Answer 1

Solution 1a:

Credit sales	8560000
Less: Sales return and allowances	206000
Net credit sales	8354000
Estimated Loss rate	0.003
Amount to be charges to uncollectible accounts expense	25062

Solution 1b:

Accounts Receivable estimated Uncollectible ($910000*3.3%)	30030
Less: Beginning balance of Allowance for Doubtful accounts	3600
Amount to be charges to uncollectible accounts expense	26430

Solution 2a:

Credit sales	8560000
Less: Sales return and allowances	206000
Net credit sales	8354000
Estimated Loss rate	0.003
Amount to be charges to uncollectible accounts expense	25062

Solution 2b:

Accounts Receivable estimated Uncollectible ($910000*3.3%)	30030
Add: Debit balance of Allowance for Doubtful accounts	3100
Amount to be charges to uncollectible accounts expense	33130

Analyze:

Using the Percentage of net credit sales method, would give higher income this year.