Case study for ACG2021 ,Which method should they use and why? Calculate bad debts under each method and find the method closest to the actual bad debts.

Case 2 [JACOBIAN STEEL Jacobian Steel Manufacturing sells bulk steel products for maritime construction. The company has used the allowance method for estimated bad debts for several years. Specifically they estimate that 6% of credit sales will go bad each year. Over the past several years, Jacobian has seen that year-end allowance account has a debit balance before adjustment. The company wants an in-depth analyzes of bad debts and a determination as to which method to use. You have been hired to perform the study. During your review of their financial records, the following data becomes available. Credit Sales: Year 2010 2011 2012 Total Sales $1,000,000 $1,800,000 $2,000,000 % on credit 60% 70% 75% Write offs: Year 2010 2011 2012 Bad debts written off $52,000 $96,000 $60,000 Allowance Balance on December 31, 2005 before adjustment: Year Balance 2010 $6,000 2011 $42,000 2012 $12,000 Aging of Accounts Receivable: 2012 Accounts Receivable Not due $250,000 1-30 past due $110,000 31-60 $140,000 61- 90 $90,000 Over 90 days $40,000 Percentage uncollectible 6% 15% 20% 30% 60% Considering also using percentage of accounts receivable balance to compute estimated uncollectible for period. Jacobian considers using 12%. Created by M. Mari Fall 2014 Page 1 of 2 Case 2 [JACOBIAN STEEL Accounts Receivable Balance: Year 2010 2011 2012 Year end Balance $365,000 $425,000 $630,000 Which method should they use and why? Calculate bad debts under each method and find the method closest to the actual bad debts. Created by M. Mari Fall 2014 Page 2 of 2