Question

# On Dec 31, 2016, Riyadh Company had accounts: Credit sales                                 &nb

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?
1. 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?

A. a. balance of Doubtful Accounts

=\$800,000*3%

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

Balance of Doubtful Accounts is \$40,000

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