The December 31, 2009 Balance Sheet of Sauder Company Had

question 62

Essay

The December 31, 2009 balance sheet of Sauder Company had Accounts Receivable of $500,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2010, the following transactions occurred: sales on account $1,400,000; sales returns and allowances, $50,000; collections from customers, $1,150,000; accounts written off $35,000; previously written off accounts of $5,000 were collected.
Instructions
(a) Journalize the 2010 transactions.
(b) If the company uses the percentage of sales basis to estimate bad debts expense and anticipates 2% of net sales to be uncollectible, what is the adjusting entry at December 31, 2010?
(c) If the company uses the percentage of receivables basis to estimate bad debts expense and determines that uncollectible accounts are expected to be 4% of accounts receivable, what is the adjusting entry at December 31, 2010?
(d) Which basis would produce a higher net income for 2010 and by how much?

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Definitions:

Oil Level

The measure of the amount of oil within a system or component, essential for proper lubrication and function.

Tax-shield Approach

The use of allowable deductions and exemptions to reduce taxable income, effectively lowering the overall tax burden.

OCF

Operating Cash Flow, which represents the cash generated by a company's regular business operations.

Comprehensive Income

The total change in equity for a business enterprise during a period from transactions and other events from non-owner sources, including all revenues, gains, expenses, and losses.