Nolte Products Is Undecided About Which Base to Use in Estimating

question 18

Essay

Nolte Products is undecided about which base to use in estimating uncollectible accounts. On December 31, 2010, the balance in Accounts Receivable was $680,000 and net credit sales amounted to $3,500,000 during 2010. An aging analysis of the accounts receivable indicated that $36,000 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:

Metric Drawings

Engineering or technical drawings in which dimensions and measurements are indicated using the metric system, typically millimeters (mm) or meters (m).

Millimeters

A unit of length in the metric system equal to one thousandth of a meter, commonly used worldwide for many measurements.

Lettering

The practice of adding textual information, such as notes and dimensions, to engineering drawings in a standardized manner.

Pictorial Drawing

A type of drawing that represents three dimensions of an object in one view, providing a realistic view of an object, making it easier to understand its shape and features.