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Carmichael Company is considering two alternative approaches to estimate uncollectible accounts expense for the current year: the Aging Schedule Method and the Percentage-of-Credit- Sales
Carmichael Company is considering two alternative approaches to estimate uncollectible accounts expense for the current year: the Aging Schedule Method and the Percentage-of-Credit- Sales Approach. The Allowance for Doubtful Accounts before adjustments at December 31 showed a credit balance of $2,400. For the Aging Schedule Method the following year-end aging of the accounts receivable was prepared: Not yet due 1-30 days past due 31-60 days past due 61-90 days past due Over 90 days past due Total Amount $120,000 50,000 34,000 10,000 4,000 $218,000 Percentage Uncollectible 2% 4% 12% 24% 50% The company estimated the percentages uncollectible listed above based on past experience. For the Percentage-of-Credit-Sales the company estimates that uncollectible accounts will average 2% of net sales. Net Sales for the current year are $218,000. Instructions a. Aging Schedule Method: Compute the estimated amount of uncollectible accounts based on the above aging schedule and prepare the December 31 adjusting entry needed to bring the Allowance for Doubtful Accounts to the proper amount. Also, show the year- end balance sheet presentation of Accounts Receivable and Allowance for Doubtful Accounts. b. Percentage-of-Credit-Sales Approach: Compute the estimated amount of uncollectible accounts using management's estimate that uncollectible accounts will average 2% of net sales and prepare the December 31 adjusting entry.
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