Question

On Dec 31, 2016, Riyadh Company had accounts:

1. Credit sales                                                                             $2,500,000
2. Ending accounts receivable                                                         800,000
3. Sales discousnts                                                                          120,000
4. Sales returns and allowances                                                       280,000
5. Beginning accounts receivable                                                    750,000
6. Allowance for doubtful accounts (credit)                                     12,000     
7. The aging schedule (aging method) for the company’s accounts receivable is shown in the following table:

# of Days Outstanding	Amounts	Estimated % Uncollectible
0-30	$     100,000	2%
31-60	300,000	4%
61-90	300,000	6%
Over 90	100,000	8%

Requirements:

1. If the compnay’s use the percentage of net credit sales method (3%) to estimate its allowance for the doubtful accounts, answer the following two questions:

• What is the balance of the allowance for doubtful accounts on Dec 31, 2016?
• What is the bad debt expense that should be reported in the 2016 income statement?

2. If the compnay’s use the percentage of the aging method of accounts receivable to estimate its alloance for the doubtful accounts, what is the required balance for the the doubtful accounts on Dec 31, 2016?
   • What is the balance of the allowance for doubtful accounts on Dec 31, 2016?
   • What is the bad debt expense that should be reported in the 2016 income statement?

Answer 1

A. a. balance of Doubtful Accounts

=$800,000*3%

=$24,000/- Answer

b. Bad debts expenses on 2016

Calculation of total Doubtful

# day of O/s	Amounts	Estimated % uncollectable	Amount of Doubtful
0-30	$100000	2%	$2000
31-60	$300000	4%	$12000
61-90	$300000	6%	$18000
Over 90	$100000	8%	$8000
Total			$40,000

Amount of Doubtful =$24000

Amount of Bad debts =$40,000-24,000

=$16,000/- Answer

B. Answer

Balance of Doubtful Accounts is $40,000

Bad debts Accounts = 0