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Accounts receivable $900,000
Allowance for uncollectible accounts (before any provision for the year uncollectible accounts expense) 16,000
Credit sales for the year 1,750,000
XYZ is considering the following methods of estimating uncollectible accounts expense for the year :
Based on credit sales at2%
Based on accounts receivable at5%
What amount should XYZ charge to uncollectible accounts expense under each method?
Percentage of Credit Sales Percentage of Accounts Receivable
A. $51,000 $45,000
B. $51,000 $29,000
C. $35,000 $45,000
D. $35,000 $29,000
Answer option >>>>>>>> D >>>>>>>>>>> $35,000 -- $29,000
Answer:D. $35,000 , $29,000 respectively
The % of sales method gives the doubtful expense for the period while on Accounts receivable method the % over the AR balance gives the total estimated unrecoverable accounts receivable to be recorded, needed to deduct any balance to arrive with the current period expense.
1750000*2%=35000
900000*5%=45000
but
=29000
answer is D
Based on credit sales of175000@2% total required amount is35000 less allowance16000 there should be additional19000.
On other hand based on receivables900000@5% required is45000 less allowance16000 there should be additional29000.
