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The balances of selected accounts of the Dexter Company on December 31, 2019, are given below: Accounts Receivable $ 840,000 Allowance for Doubtful Accounts (credit)
The balances of selected accounts of the Dexter Company on December 31, 2019, are given below:
Accounts Receivable | $ | 840,000 | |
Allowance for Doubtful Accounts (credit) | 2,900 | ||
Total Sales | 9,940,000 | ||
Sales Returns and Allowances (total) | 239,000 | ||
(Credit sales were $8,490,000. Returns and allowances on these sales were $199,000.) Required:
- Compute the amount to be charged to Uncollectible Accounts Expense under each of the following different assumptions:
- Uncollectible accounts are estimated to be 0.2 percent of net credit sales.
- Experience has shown that about 3.4 percent of the accounts receivable will prove worthless.
- Suppose Allowance for Doubtful Accounts has a debit balance of $2,400 instead of a credit balance of $2,900, but all other account balances remain the same. Compute the amount to be charged to Uncollectible Accounts Expense under each assumption in item 1.
Analyze: If you were the owner of Dexter Company and wished to maximize profits reported for 2019, which method would you prefer to use?
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