Cash and receivables - In class problem

Cash and receivables - In class problem - adjustment at the...

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Cash and Receivables: Inclass Question Question 1 The Melrose Co. Ltd. began operations in January 20x5. The schedule below indicates credit sales and end-of-year balances are broken down by the "age" of the receivables. End-of-year balance in accounts receivable Year Credit sales Total Number of days past due Est. ADA Current 1-30 31-60 Over 60 20x5 20x6 20x7 20x8 $ 12,000 14,000 16,000 18,000 $1,080 1,500 1,600 1,820 $ 800 1,100 900 1,280 $100 300 400 220 $150 50 200 200 $ 30 50 100 120 The company estimates that approximately 5% of all credit sales will prove to be uncollectible. It has also determined that of its accounts receivable balance at any date, the following percentages will likely be uncollectible: Current 15% 1-30 days past due 40 31-60 days past due 50 Over 60 days past due 60 The balance in the "allowance for doubtful accounts" account was zero prior to the
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Unformatted text preview: adjustment at the end of 20x5. Actual write-offs of accounts receivable were as follows: 20x5 $260 20x6 580 20x7 815 20x8 893 Required : a. Determine the bad debt expense for each of the four years assuming first that the company bases its addition to the allowance for doubtful accounts on credit sales and alternatively on a schedule of aged accounts receivable. b. Compare total bad debt expense over the combined four-year period under each of the two methods. Which method results in the more erratic pattern of bad debt expense in this particular example? Why? % of Sales Method Acc'ts. Receivable A.D.A. Bad Debt Expense open bal.-0-Aged Accounts Receivable Method Acc'ts. Receivable A.D.A. Bad Debt Expense open bal.-0-...
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This note was uploaded on 05/06/2010 for the course COMM Comm 353 taught by Professor Zhang during the Spring '09 term at The University of British Columbia.

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Cash and receivables - In class problem - adjustment at the...

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