The balances of selected accounts of Spartan Sportswear Company on December 31, 2016, are given below. Credit sales totaled $38,480,000. The returns and allowances on these sales were $220,000.
Accounts Receivable ............................. $ 3,620,000
Allowance for Doubtful Accounts ............ 6,120 (credit)
Total Sales .......................................... 41,400,000
Total Sales Returns and Allowances ................ 282,000
Instructions
1. Compute the amount to be charged to Uncollectible Accounts Expense under each of the following different sets of assumptions. Round computations to nearest dollar.
a. Bad debt losses are estimated to be 0.32 percent of net credit sales.
b. Experience has shown that about 3.2 percent of the accounts receivable are uncollectible.
2. Suppose that Allowance for Doubtful Accounts has a debit balance of $6,120 instead of a credit balance of that amount before adjustments, but all other account balances remain the same. Compute the amount to be charged to Uncollectible Accounts Expense under each of the assumptions listed in the first instruction.
Analyze: Which method results in the highest uncollectible expense for the period?