Reference no: EM132907832

Pancake, Inc., which has been in business for three years, makes all sales on account and does not offer cash discounts. The firm's credit sales, collections from customers, and write-offs of uncollectible accounts for the three-year period are summarized below:

Year            Sales Collections          Accounts           Written Off

1                    $400,000                   $380,000          $2,000

2                       600,000                      590,000          2,400

3                       720,000                       704,000        3,000

REQUIRED

Problem a) If Pancake, Inc., had used the direct write-off method of recognizing credit losses during the three years, what amount of Accounts Receivable would appear on the firm's balance sheet at the end of the third year? What total amount of uncollectible accounts expense would have appeared on the firm's income statement during the three-year period?

Problem b) If Pancake, Inc., had used an allowance method of recognizing credit losses and had provided for such losses at the rate of 0.75% of sales, what amounts of Accounts Receivable and Allowance for Uncollectible Accounts would appear on the firm's balance sheet at the end of the third year? What total amount of uncollectible accounts expense would have appeared on the firm's income statement during the three-year period?

Problem c) Comment on the use of the 0.75% rate to provide for losses in part (b).