Step 1 Search thefollowing.
For several years, Xtreme Co.'s sales have been on a âcash onlyâbasis. On January 1, 2013, however, Xtreme Co. began offeringcredit on terms of n/30. The amount of the adjusting entry torecord the estimated uncollectible receivables at the end of eachyear has been ½ of 1% of credit sales, which is the rate reportedas the average for the industry. Credit sales and the year-endcredit balances in Allowance for Doubtful Accounts for the pastfour years are as follows:
Laurie Jones, president of Xtreme Co., is concerned that themethod used to account for and write off uncollectible receivablesis unsatisfactory. She has asked for your advice in the analysis ofpast operations in this area and for recommendations forchange.
Year Credit Sales Allowance for Doubtful Accounts
2013 4,000,000 5,000
2014 4,400,000 8,250
2015 4,800,000 10,200
2016 5,100,000 14,400
Step 2 Post to the discussion board.
Respond to the following questions and, if appropriate, includepersonal experience as part of your answers.
Determine the amount of (a) the addition to Allowance forDoubtful Accounts and (b) the accounts written off for each of thefour years.
Advise Laurie Jones as to whether the estimate of ½ of 1% ofcredit sales appears reasonable.
Assume that after discussing with Laurie Jones, she asked youwhat action might be taken to determine what the balance ofAllowance for Doubtful Accounts should be at December 31, 2016, andwhat possible changes, if any, you might recommend in accountingfor uncollectible receivables. How would you respond?
Step 1 Search thefollowing.
For several years, Xtreme Co.'s sales have been on a âcash onlyâbasis. On January 1, 2013, however, Xtreme Co. began offeringcredit on terms of n/30. The amount of the adjusting entry torecord the estimated uncollectible receivables at the end of eachyear has been ½ of 1% of credit sales, which is the rate reportedas the average for the industry. Credit sales and the year-endcredit balances in Allowance for Doubtful Accounts for the pastfour years are as follows:
Laurie Jones, president of Xtreme Co., is concerned that themethod used to account for and write off uncollectible receivablesis unsatisfactory. She has asked for your advice in the analysis ofpast operations in this area and for recommendations forchange.
Year Credit Sales Allowance for Doubtful Accounts
2013 4,000,000 5,000
2014 4,400,000 8,250
2015 4,800,000 10,200
2016 5,100,000 14,400
Step 2 Post to the discussion board.
Respond to the following questions and, if appropriate, includepersonal experience as part of your answers.
Determine the amount of (a) the addition to Allowance forDoubtful Accounts and (b) the accounts written off for each of thefour years.
Advise Laurie Jones as to whether the estimate of ½ of 1% ofcredit sales appears reasonable.
Assume that after discussing with Laurie Jones, she asked youwhat action might be taken to determine what the balance ofAllowance for Doubtful Accounts should be at December 31, 2016, andwhat possible changes, if any, you might recommend in accountingfor uncollectible receivables. How would you respond?
