Assignment Two The December 31 2016 balance sheet of Sauder

Assignment Two The December 31, 2016 balance sheet of Sauder Company had Accounts Receivable of £500,000 and a credit balance in Allowance for Doubtful Accounts of £33,00o. During 2017, the following transactions occurred: sales on account £1,300,000; sales returns and allowances, £50,00o; collections from customers, £1,215,000; accounts written off £35,000; previously written off accounts of £5,000o were collected.- Instructionse 1. Journalize the 2017 transactions. 2. If the company uses the percentage-of-sales basis to estimate bad debts expense and I. anticipates 2% of net sales to be uncollectible, what is the adjusting entry at December 31, 2017? 3. If the company uses the percentage-ofreceivables basis to estimate bad debts expense and determines that uncollectible accounts are expected to be 4% of accounts receivable, what is the adjusting entry at December 31, 2017?4 4. Which basis would produce a higher net income for 2017 and by how much?

Solution

1) Accounts receivable 1300000 Sales 1300000 (To record sales on account) Sales returns and allowances 50000 Accounts receivable 50000 (To record returns and allowances made) Cash 1215000 Accounts receivable 1215000 (To record collections) Allowance of doubtful accounts 35000 Accounts receivable 35000 (To record write off of doubtful debts) Accounts receivable 5000 Allowance for doubtful accounts 5000 (To restore accounts receivable) Cash 5000 Accounts receivable 5000 (To record cash received from written off debt) 2) Bad debts = 2%*(1300000-50000) = 25000 Allowance for doubtful accounts 25000 (To record adjustment entry for bad debts) 3) Bad debts = 4%*(500000+1300000-50000-1215000-35000) - (33000-35000) = 22000 Allowance for doubtful accounts 22000 (To record adjustment entry for bad debts) 4) The % of receivables basis will yield Higher net income. It will be higher by $3000.