Methods of Estimating Uncollectible Accounts and receivables Analysis McLennon C
ID: 2569803 • Letter: M
Question
Methods of Estimating Uncollectible Accounts and receivables Analysis 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: a. Sales on account, $1,052,000 b. Sales returns and allowances by credit customers, $53,400 c. Collections from customers, $993,000 d. 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. 1. Preparet 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. Accounts Receivable Bal. 320000 Sales returns and allowances : 53400 Cash sales 105200 Collections from customers 4 993000 Write-offs 19800 Bal. 137200 Allowance for Uncollectible Accounts Write-offs 19800 Bal. 16700 Bal. 3100Explanation / Answer
Answer 1 Ending balance of Accounts Receivable = $320000+$1052000-$53400-$993000-$19800 = $305800 (Debit) Ending balance of Allowance for Uncollectible accounts = $16700 - $19800 = $3100 (Debit) Answer 2 a.The percentage of net sales method Uncollectible accounts expense = 2.5% of net sales = 2.5% * ($1052000 - $53400) = $24,965 Allowance for uncollectible accounts = Uncollectible accounts expense - Debit balance of Allowance for uncollectible accounts = $24965 - $3100 = $21,865 Accounts Receivable net = $305800 - $21865 = $2,83,935 a.Accounts Receivable aging method Uncollectible accounts expense = $24000 + Debit balance of Allowance for uncollectible accounts i.e.$3100 = $27100 Allowance for uncollectible accounts = $24000 Accounts Receivable net = $305800 - $24000 = $2,81,800 Answer 3 Receivable Turnover ratio = Net Credit sales / Average Accounts Receivables ,net Net Credit sales = $1052000 - $53400 = $998600 Average accounts receivables,net = ($303300+$281800)/2 = $292550 Receivable Turnover ratio = $998600 / $292550 = 3.41 times Days sales uncollected = 365 days / Receivable turnover ratio = 365 / 3.41 = 107 days