Nolte Products Is Undecided About Which Basis to Use in Estimating

question 193

Essay

Nolte Products is undecided about which basis to use in estimating uncollectible accounts. On December 31, 2014, the balance in Accounts Receivable was $680,000 and net credit sales amounted to $3,700,000 during 2014. An aging analysis of the accounts receivable indicated that $39,000 in accounts are expected to be uncollectible. Past experience has shown that about 1% of net credit sales eventually are uncollectible.
Instructions
Prepare the adjusting entries to record estimated bad debts expense using the (1) percentage of sales basis and (2) the percentage of receivables basis under each of the following independent assumptions:
(a) Allowance for Doubtful Accounts has a credit balance of $3,200 before adjustment.
(b) Allowance for Doubtful Accounts has a debit balance of $730 before adjustment.

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Definitions:

Zara

A global fashion retailer known for its fast-fashion business model, achieving rapid inventory turnover and quick adaptation to changing fashion trends through integrated design, production, and distribution processes.

Supply Chain Strategy

A plan for managing all the resources involved in sourcing, producing, and delivering products and services to customers.

Lead Times

The duration between the initiation and the completion of a production process, or the time it takes for an order to be delivered after its placement.

Macro Processes

Refers to the overarching, large-scale operations or functions within a system or organization that influence its overall performance.