Compare Two Methods of Accounting for Uncollectible Receivables Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of 7% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts: Year of Origin of Accounts Receivable Written off as Uncollectible Uncollectible Accounts Year Sales 3rd Written off 1st 2nd 4th $1,250 $1,250 1,400 $1,600 1st $1,400,000 2nd 1,760,000 3rd 2,650,000 4th 3,400,000 Required: 3,000 11,550 3,350 2,650 $5,550 16,650 3,850 5,650 $7,150 1. Assemble the desired data. Enter a decrease in the amount of expense as a negative number and all other amounts as positive numbers Call Systems Company Bad Debt Expense Expense Actually Year Expense Based on Fstimate Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year Danartert 1st $1,250 $1,250 2nd $1,400,000 1,760,000 2,650,000 3,000 1,400 $1,600 3rd 11,550 3,350 $5,550 2,650 3,850 4th 3,400,000 16,650 5,650 57,150 Required: 1. Assemble the desired data. Enter a decrease in the amount of expense as a negative number and all other amounts as positive numbers. Call Systems Company Bad Debt Expense Year Expense Actually Reported Expense Based on Estimate Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year 1st 2nd 3rd 4th 2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of Va% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Gen-X Ads Co. produces advertising videos. During the current fiscal year, Gen-X Ads Co. received the following notes: Date Face Amount Interest Rate Term 1. Apr. 10 $54,000 496 60 days 2. June 24 12,000 6 30 days 3. July 1 36,000 6 120 days 4. Oct. 31 36,000 9 60 days 5. Nov. 15 54,000 6 60 days 6. Dec. 27 126,000 30 days Required: Assume 360 days in a year. 1. Determine for each note (a) the due date and (b) the amount of Interest due at maturity, identifying each note by number (a) (b) Note Due Date Interest Due at Maturity (1) (2) (3) (4) (5) 3 (6) 2. Journalize the entry to record the dishonor of Note (3) on its due date. If an amount box does not require an entry, leave it blank or enter "0". 3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31. Dec. 31 4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January. If an amount box does not require an entry, leave it blank or enter"0". Jan. 14 3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31. Dec. 31 4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January. If an amount box does not require an entry, leave it blank or enter"0". Jan. 14 (1) 11 Jan. 26