Question

The balances of selected accounts of the Dexter Company on December 31, 2019, are given below: Accounts Receivable $ 850,000 Allowance for Doubtful Accounts (credit) 3,000 Total Sales 9,950,000 Sales Returns and Allowances (total) 240,000 (Credit sales were $8,500,000. Returns and allowances on these sales were $200,000.) Required: Compute the amount to be charged to Uncollectible Accounts Expense under each of the following different assumptions: Uncollectible accounts are estimated to be 0.1 percent of net credit sales. Experience has shown that about 3.3 percent of the accounts receivable will prove worthless. Suppose Allowance for Doubtful Accounts has a debit balance of $2,500 instead of a credit balance of $3,000, 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. Req 1aReq 1bReq 2aReq 2bAnalyze Uncollectible accounts are estimated to be 0.1 percent of net credit sales. Compute the amount to be charged to Uncollectible accounts. (Round your ''Estimated loss rate'' to 3 decimal places, i.e. 1.2% should be entered as 0.012.) Credit sales Net credit sales Estimated loss rate Amount to be charged to uncollectible accounts expense Req 1aReq 1b

Answer 1

1)
a	Credit sales	8500000
	Less: sales returns and allowance on credit sales	200000
	Net credit sales	8300000
	Amount to be charged to the Uncollectible accounts expense (0.001*8,300,000)	20750
b	Accounts receivable	850000
	Accounts receivable estimated uncollectible (0.033*850000)	28050
	Less: Credit balance in allowance for doubtful accounts	-3000
	Amount to be charged to the Uncollectible accounts expense	25050
2)
a	Credit sales	8500000
	Less: sales returns and allowance on credit sales	200000
	Net credit sales	8300000
	Amount to be charged to the Uncollectible accounts expense (0.001*8,300,000)	20750
b	Accounts receivable estimated uncollectible	28050
	Add: debit balance in allowance for doubtful accounts	2500
	Amount to be charged to the uncollectible accounts expense	30550
Analyze: Using the sales basis would give highest income this year.