Reference no: EM132485467

This is the question:

Question 1: Suppose that similar programs in the past have resulted in uncollectible accounts of approximately 80%. If Arnold uses the allowance method, what should be the balance of Allowance for Uncollectible Accounts at the end of the current year?

Required information

Problem 1: Compare the direct write-off method to the allowance method

Point 1: In an effort to boost sales in the current year, Roy's Gym has implemented a new program where members do not have to pay for their annual membership until the end of the year. The program seems to have substantially increased membership and revenues. Below are year-end amounts.

Membership Revenues Accounts Receivable

Last year      $140,000       $5,800

Current year   420,000    168,000

Point 2: Arnold, the owner, realizes that many members have not paid their annual membership fees by the end of the year. However, Arnold believes that no allowance for uncollectible accounts should be reported in the current year because none of the nonpaying members' accounts have proven uncollectible. Arnold wants to use the direct write-off method to record bad debts, waiting until the end of next year before writing off any accounts.