Question
McCarthy Company employed the percentage of sales method to estimate its uncollectible accounts receivable in past years. The rate of 1.5 percent of credit sales
McCarthy Company employed the percentage of sales method to estimate its uncollectible accounts receivable in past years. The rate of 1.5 percent of credit sales was used in the past.
The accountant for McCarthy has been considering basing the allowance provision on an aging schedule of customers’ accounts receivable. The aging schedule presented below was prepared as of December 31, 2020 and is based upon past collectible experience.
Days Outstanding | Amounts | Probability of Collection | |
Current | $100,000 | .98 | |
Less than 30 days past due | $50,000 | .90 | |
31 – 60 days past due | $30,000 | .80 | |
61 – 90 days past due | $10,000 | .60 | |
91- and over past due | $10,000 | .50 | |
Total Accounts Receivable | $200,000 | ||
McCarthy had credit sales for 2020 of $160,000 and its total sales were $2,200,000. The Allowance for uncollectible accounts had a credit balance of $25,000 on December 31, 2020 after Company wrote off accounts receivable totaling $18,600 during 2020. 1. What is the bad debt expense for 2020, if McCarthy continues to use the percentage of sales technique to estimate its uncollectible accounts? 2. What is the allowance for uncollectible accounts at December 31, 2020 if McCarthy continues to use the percentage of sales technique to estimate uncollectible accounts? 3. What is the bad debt expense for 2020, if McCarthy’s allowance provision is based upon the aging of accounts receivable? 4. What is the allowance for uncollectible accounts at December 31, 2020 if McCarthy changes to the aging method? 5. What is the bad debt expense for 2020 if McCarthy used the direct write-off method. |
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