Question

Allowance Method Steinbrook Company, which has been in business for three years, makes all of its sales on account and does not offer cash discounts. The firm's credit sales, collections from customers, and write-offs of uncollectible accounts for the three-year period are summarized below:

Year	Sales	Collections	Accounts Written Off
2012	$755,000	$733,000	$4,300
2013	880,000	864,000	4,800
2014	976,000	938,000	4,500

Required
If Steinbrook Company used an allowance method of recognizing credit losses and provided for such losses at the rate of one percent of credit sales, what amounts in accounts receivable and the allowance for doubtful accounts should appear on the firm's balance sheet at the end of 2014? What total amount of bad debts expense would have appeared on the firm's income statement during the three year period?

1.Balance in Accounts Receivable at year end, 2014 ?
2.Allowance for Doubtful Accounts Balance at year end 2014 ?
3.Bad Debts Expense ?

Answer 1

Balance of Accounts receivable
Total sales (755000+880000+976000)				2611000
Less: Tota l collections				2535000
Less: Total bad debts				13600
Balance of Accounts receivable				62400
Balance of Allowance for doubtful accounts
Total credit sales (2611000*1%)				26110
Less: Amount written off				13600
Balance of Allowance for doubtful accounts				12510
Bad debts expense:
Total credit sales				2611000
Bad debts expense at 1%				26110