McLennon Company had an Accounts Receivable balance of $320,000 and a credit bal
ID: 2569669 • Letter: M
Question
McLennon Company had an Accounts Receivable balance of $320,000 and a credit balance in Allowance for Uncollectible Accounts of $16,700 at January 1, 2014. During the year, the company recorded the following transactions:
Sales on account, $1,052,000
Sales returns and allowances by credit customers, $53,400
Collections from customers, $993,000
Worthless accounts written off, $19,800
The company's past history indicates that 2.5 percent of its net credit sales will not be collected.
Prepare T accounts for Accounts Receivable and Allowance for Uncollectible Accounts. Enter the beginning balances, and show the effects on these accounts of the items listed above, summarizing the year’s activity. Determine the ending balance of each account.
Compute Uncollectible Accounts Expense, determine the ending balance of Allowance for Uncollectible Accounts and net Accounts Receivable under (a) the percentage of net sales method and (b) the accounts receivable aging method, assuming an aging of the accounts receivable shows that $24,000 may be uncollectible.
Percentage of net sales method:
Accounts receivable aging method:
Compute the receivables turnover and days' sales uncollected, using the data from the accounts receivable aging method in requirement 2. Round Receivables Turnover answer to one decimal place. Round Days' Sales Uncollected answer to nearest whole day. Use your rounded Receivables Turnover answer when calculating Days' Sales Uncollected. Assume 365 days in a year.
Accounts ReceivableExplanation / Answer
Accounts receivable
Allowance for Uncollectible Accounts
Percentage of net sales method:
Accounts receivable aging method:
Receivables turnover = Net credit sales/ Average Net accounts receivable
= $998600/ [($303300 + $281800)/2]
= 3.4
Days' Sales Uncollected = 365 / Receivables turnover
= 365/ 3.4
= 107 days
Particulars Amount Particulars Amount Beg balance $320000 Sales returns $53400 Sales 1052000 Cash collections 993000 Allowance for Uncollectible Accounts 19800 End balance $305800