You have just been hired as the accountant for Fan-Tastic Sports Gear, a wholesaler of sporting goods and apparel. The previous accountant left abruptly, and an accounting intern has been drafting the journal entries since January. You are examining the accounting records before finalizing the journal entries for the first quarter. Some of the accounts receivable transactions that you are reviewing follow.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jan. 17	Sales		9,800.00
2		Bad Debt Expense			9,800.00
3	17	Bad Debt Expense		9,800.00
4		Accounts Receivable-CJs Sports			9,800.00
5	21	Cash		10,600.00
6		Bad Debt Expense		2,300.00
7		Accounts Receivable-Four Seasons Sportswear			12,900.00
8	Feb. 15	Accounts Receivable-Healthy Running		3,000.00
9		Bad Debt Expense		500.00
10		Sales			3,500.00
11	Mar. 4	Accounts Receivable-Four Seasons Sportswear		2,300.00
12		Bad Debt Expense			2,300.00
13	4	Cash		2,300.00
14		Bad Debt Expense			2,300.00
15	13	Cash		5,540.00
16		Accounts Receivable-Barbs Best Gear			5,540.00
17	31	Bad Debt Expense		20,770.00
18		Accounts Receivable-Healthy Running			5,150.00
19		Accounts Receivable-The Locker Room			4,100.00
20		Accounts Receivable-CJs Sports			2,780.00
21		Accounts Receivable-Get Your Gear			7,050.00
22		Accounts Receivable-Ready-2-Go			1,690.00

CHART OF ACCOUNTS

Fan-Tastic Sports Gear

General Ledger

	ASSETS
110	Cash
111	Petty Cash
121	Accounts Receivable-Healthy Running
122	Accounts Receivable-The Locker Room
123	Accounts Receivable-CJs Sports
124	Accounts Receivable-Get Your Gear
125	Accounts Receivable-Four Seasons Sportswear
126	Accounts Receivable-Ready-2-Go
127	Accounts Receivable-Barbs Best Gear
132	Notes Receivable-Fast Feet Co.
136	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
151	Prepaid Insurance
181	Land
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
211	Salaries Payable
213	Sales Tax Payable
214	Interest Payable
215	Notes Payable

	EQUITY
310	Rama Gupta, Capital
311	Rama Gupta, Drawing

	REVENUE
410	Sales
610	Interest Revenue

	EXPENSES
510	Cost of Merchandise Sold
520	Sales Salaries Expense
521	Advertising Expense
523	Delivery Expense
524	Repairs Expense
529	Selling Expenses
530	Office Salaries Expense
531	Rent Expense
532	Depreciation Expense-Office Equipment
533	Insurance Expense
534	Office Supplies Expense
536	Credit Card Expense
537	Cash Short and Over
538	Bad Debt Expense
539	Miscellaneous Expense
710	Interest Expense

Review the accounts receivable transactions shown in the general journal on the Fan-Tastic Sports Gear panel. Answer the following questions.

How does the company appear to be handling uncollectible receivables?

aging of accounts receivable method

direct write-off method

percent of sales method

allowance method

2. You have made the following observations during your review of the accounting records. In deciding whether Fan-Tastic Sports Gear is handling uncollectible receivables appropriately, which of these observations are key factors in your decision? Check all that apply.

Most of the companys sales are on account.

Bad debt is a rising expense.

Collection agencies are routinely used.

An analysis of the companys accounts receivable shows more accounts will be uncollectible than last year.

Company sales last year were $2,900,000 and are expected to increase by $350,000 this year.

The company sells primarily to smaller businesses, who are more likely to have cash flow problems.

3. After making the observations listed in (2), you have recommended that Fan-Tastic Sports Gear use the to journalize bad debt expense.