Determining account balances: percent of revenue allowance method of accounting for uncollectible accounts
The following information pertains to Royal Carpet Company’s sales on account and accounts receivable.
|
Accounts receivable balance, January 1, 2010 |
$ 64,500 |
|
Allowance for doubtful accounts, January 1, 2010 |
2,800 |
|
Sales on account, 2010 |
756,000 |
|
Cost of goods sold, 2010 |
505,000 |
|
Collections of accounts receivable, 2010 |
782,000 |
After several collection attempts, Royal Carpet Company wrote off $2,600 of accounts that could not be collected. Royal estimates that bad debts expense will be 0.5 percent of sales on account.
Required
a. Compute the following amounts.
(1) Using the allowance method, the amount of uncollectible accounts expense for 2010.
(2) Net realizable value of receivables at the end of 2010.
b. Explain why the uncollectible accounts expense amount is different from the amount that was written off as uncollectible.