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Rivero Graphics, owned by Maria Rivero, sells paper novelty goods to retail stores. All sales are made on credit and the company has regularly estimated
Rivero Graphics, owned by Maria Rivero, sells paper novelty goods to retail stores. All sales are made on credit and the company has regularly estimated its uncollectible accounts expense as a percentage of Let sales. The percentage used has been of of net sales. However, it appears that this provision has been inadequate because the Allowance for Doubtful Accounts has a debit balance of $ at May prior to making the monthly provision. Rivero has therefore decided to change the method of estimating uncollectible accounts expense and to rely upon an analysis of the age and character of the accounts receivable at the end of each month.
At May the accounts receivable totaled $ This total amount included pastdue accounts in the amount of $ None of these pastdue accounts was considered worthless; all accounts regarded as worthless had been written off as rapidly as they were determined to be uncollectible. After careful investigation of the $ of pastdue accounts at May Rivero decided that the probable loss contained therein was In addition she decided to provide for a loss of of the current accounts receivable.
Instructions:
Compute the probable uncollectible accounts expense applicable to the $ of accounts receivable at May based on the analysis by the owner.
Prepare the journal entry necessary to carry out the change in company policy with respect to providing for uncollectible accounts expense.
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