Reference no: EM131712247
Accounting for uncollectible accounts: percent of revenue allowance versus direct write-off method
Joey's Bike Shop sells new and used bicycle parts. Although a majority of its sales are cash sales., it makes a significant amount of credit sales. During 2016, its first year of operations, Joey's Bike Shop experienced the following:
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Sales on account
Cash sales
Collections of accounts receivable
Uncollectible accounts charged off during the year
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$260,000
580,000
235,000
1,250
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Required
a. Assume that Joey's Bike Shop uses the allowance method of accounting for uncollectible accounts and estimates that 1 percent of its sales on account will not be collected.
Answer the following questions:
(1) What is the Accounts Receivable balance at December 31, 2016?
(2) What is the ending balance of the Allowance for Doubtful Accounts at December 31, 2016, after all entries and adjusting entries are posted?
(3) What is the amount of uncollectible accounts expense for 2016?
(4) What is the net realizable value of accounts receivable at December 31, 2016?
b. Assume that Joey's Bike Shop uses the direct write-off method of accounting for uncollectible accounts. Answer the following questions:
(1) What is the Accounts Receivable balance at December 31, 2016?
(2) What is the amount of uncollectible accounts expense for 2016?
(3) What is the net realizable value of accounts receivable at December 31.2016?
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