Ted's Bike Shop sells new and used bicycle parts. Although a majority of its sales are cash sales, it makes a significant amount of credit sales. During 2011, its first year of operations, Ted's Bike Shop experienced the following:

Required

a. Assume that Ted's Bike Shop uses the allowance method of accounting for uncollectible accounts and estimates that 1 percent of its sales on account will not be collected. Answer the following questions:
(1) What is the Accounts Receivable balance at December 31, 2011?
(2) What is the ending balance of the Allowance for Doubtful Accounts at December 31, 2011, after all entries and adjusting entries are posted?
(3) What is the amount of uncollectible accounts expense for 2011 ?
(4) What is the net realizable value of accounts receivable at December 31, 2011?

b. Assume that Ted's Bike Shop uses the direct write-off method of accounting for uncollectible accounts. Answer the following questions:
(1) What is the Accounts Receivable balance at December 31, 2011?
(2) What is the amount of uncollectible accounts expense for 2011 ?
(3) What is the net realizable value of accounts receivable at December 31, 2011?

Transcribed Image Text:

Sales on account $300,000 Cash sales 555,000 Collections of accounts receivable 260,000 Uncollectible accounts charged off during the year 250