The Cat Company obtained the following information from its accounting records for the year ended December 31, 2012:
Cat Company uses the percent-of-sales method, at 2.0% of credit sales, to estimate uncollectible accounts for 2012.
The president of the company wants to change to the aging-of-receivables method and estimates $12,450 as the uncollectible amount for 2012.
Prepare a schedule for the president showing the amount of the adjusting entry, ending balance in the allowance account, and the net realizable value of accounts receivable under each method.
Definitions:
Pretax Return
The profit a company generates before taxes are taken into account, often expressed as a percentage of sales or investment.
Salvage Value
The forecasted selling price for an asset at the end of its operational life.
Discount Rate
The financial rate implicated in translating future cash flows into their present value during discounted cash flow analysis.
Financially Attractive
Refers to investment opportunities or assets that are expected to provide substantial returns or profits.
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