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.

---

Definitions:

Product Innovations

Involve the use of new or improved design principles or technologies for incorporation in products or services.

Creativity

Creativity involves the generation of new and original ideas, approaches, or solutions through imaginative thinking and problem-solving skills.

Innovative Organisations

Organizations that excel in creating new products, services, or processes and are adept at embracing change to meet or anticipate market demands.

Creativity

The ability to generate original ideas, solutions, or approaches, often leading to innovation.