Answered: At January 1, 2020, the credit balance…

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter16: Accounting For Accounts Receivable

Section: Chapter Questions

Problem 3CP: At the end of 20-3, Martel Co. had 410,000 in Accounts Receivable and a credit balance of 300 in...

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Question

At January 1, 2020, the credit balance of Reimer Corp.’s allowance for doubtful accounts was $575,000. During 2020, the bad debt expense entry was based on a percentage of net credit sales. Net sales for 2020 were $16 million, of which 75% were on account. Based on the information available at the time, the 2020 bad debt expense was estimated to be 1% of net credit sales. During 2020, uncollectible receivables amounting to $40,000 were written off against the allowance for doubtful accounts. The company has estimated that at December 31, 2020, based on a review of the aged accounts receivable, the allowance for doubtful accounts would be properly measured at $500,000.

Required:

Prepare a schedule calculating the balance in Reimer Corp.’s allowance for doubtful accounts at December 31, 2020. Prepare any necessary journal entry at year-end to adjust the allowance for doubtful accounts to the required balance.
If accounts receivable balance at December 31 was $50,950,000, prepare a partial classified balance sheet at December 31, 2020 for Reimer. What is the net accounts receivable balance intended to measure?
Under what conditions is using the direct write-off method justified?

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