On January 1, Xtreme Co. began offering credit with terms of n/30. Uncollectible accounts are estimated to be 1% of credit sales, which is the average for the industry. The CEO, Todd Hurley, has no background in accounting and is struggling to understand the allowance method. Write a brief memo to Todd, explaining the allowance method and how this information is reported in the financial statements. CP 9-5 Estimate uncollectible accounts For several years, Xtreme Co.'s sales have been on a "cash only" basis. On January 1, 20Y4, however, Xtreme Co. began offering credit on terms of n/30. The amount of the adjusting entry to record the estimated uncollectible receivables at the end of each year has been 2 of 1% of credit sales, which is the rate reported as the average for the industry. Credit sales and the year-end credit balances in Allowance for Doubtful Accounts for the past four years are as follows: Allowance for Doubtful Accounts Credit Sales Year $ 5,000 $4,000,000 20Y4 8,250 4,400,000 20Y5 10,200 4,800,000 20Y6 14,400 5,100,000 20Υ7 (Continued) er 9 Receivables Laurie Jones, president of Xtreme Co., is concerned that the method used to account ad- your for and write off uncollectible receivables is unsatisfactory. She has asked for vice in the analysis of past operations in this area and for recommendations for change. 1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and (b) the accounts written off for each of the four years. Advise Laurie Jones as to whether the estimate of ½ of 1% of credit sales 2. a. appears reasonable. Assume that after discussing (a) with Laurie Jones, she asked you what action might be taken to determine what the balance of Allowance for Doubtful Accounts should be at December 31, 20Y7, and what possible changes, if any, you e recommend in accounting for uncollectible receivables. How would you responu b.

Question
On January 1, Xtreme Co. began offering credit with terms of n/30. Uncollectible accounts
are estimated to be 1% of credit sales, which is the average for the industry. The CEO,
Todd Hurley, has no background in accounting and is struggling to understand the
allowance method.
Write a brief memo to Todd, explaining the allowance method and how this
information is reported in the financial statements.
CP 9-5
Estimate uncollectible accounts
For several years, Xtreme Co.'s sales have been on a "cash only" basis. On January 1, 20Y4,
however, Xtreme Co. began offering credit on terms of n/30. The amount of the adjusting
entry to record the estimated uncollectible receivables at the end of each year has been
2 of 1% of credit sales, which is the rate reported as the average for the industry. Credit
sales and the year-end credit balances in Allowance for Doubtful Accounts for the past
four years are as follows:
Allowance for
Doubtful Accounts
Credit Sales
Year
$ 5,000
$4,000,000
20Y4
8,250
4,400,000
20Y5
10,200
4,800,000
20Y6
14,400
5,100,000
20Υ7
(Continued)
Expand
Transcribed Image Text

On January 1, Xtreme Co. began offering credit with terms of n/30. Uncollectible accounts are estimated to be 1% of credit sales, which is the average for the industry. The CEO, Todd Hurley, has no background in accounting and is struggling to understand the allowance method. Write a brief memo to Todd, explaining the allowance method and how this information is reported in the financial statements. CP 9-5 Estimate uncollectible accounts For several years, Xtreme Co.'s sales have been on a "cash only" basis. On January 1, 20Y4, however, Xtreme Co. began offering credit on terms of n/30. The amount of the adjusting entry to record the estimated uncollectible receivables at the end of each year has been 2 of 1% of credit sales, which is the rate reported as the average for the industry. Credit sales and the year-end credit balances in Allowance for Doubtful Accounts for the past four years are as follows: Allowance for Doubtful Accounts Credit Sales Year $ 5,000 $4,000,000 20Y4 8,250 4,400,000 20Y5 10,200 4,800,000 20Y6 14,400 5,100,000 20Υ7 (Continued)

er 9 Receivables
Laurie Jones, president of Xtreme Co., is concerned that the method used to account
ad-
your
for and write off uncollectible receivables is unsatisfactory. She has asked for
vice in the analysis of past operations in this area and for recommendations for change.
1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and
(b) the accounts written off for each of the four years.
Advise Laurie Jones as to whether the estimate of ½ of 1% of credit sales
2. a.
appears reasonable.
Assume that after discussing (a) with Laurie Jones, she asked you what action
might be taken to determine what the balance of Allowance for Doubtful Accounts
should be at December 31, 20Y7, and what possible changes, if any, you e
recommend in accounting for uncollectible receivables. How would you responu
b.
Expand
Transcribed Image Text

er 9 Receivables Laurie Jones, president of Xtreme Co., is concerned that the method used to account ad- your for and write off uncollectible receivables is unsatisfactory. She has asked for vice in the analysis of past operations in this area and for recommendations for change. 1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and (b) the accounts written off for each of the four years. Advise Laurie Jones as to whether the estimate of ½ of 1% of credit sales 2. a. appears reasonable. Assume that after discussing (a) with Laurie Jones, she asked you what action might be taken to determine what the balance of Allowance for Doubtful Accounts should be at December 31, 20Y7, and what possible changes, if any, you e recommend in accounting for uncollectible receivables. How would you responu b.

Expert Answer

Want to see the step-by-step answer?

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

*Response times may vary by subject and question complexity. Median response time is 34 minutes for paid subscribers and may be longer for promotional offers.
Tagged in
Business
Accounting

Financial Accounting

Related Accounting Q&A

Find answers to questions asked by students like you.

Q: Cost of goods manufactured schedule (LO 3) Rocket Company produces small gasoline-powered engines fo...

A: Cost of Goods Manufactured Schedule It is used to compute the cost of producing products for a perio...

Q: Whittier Construction Co. had followed the practice ofexpensing all materials assigned to a construc...

A: Financial statements: Financial statements are condensed summary of transactions communicated in the...

Q: What is the indirect effect of a change in accounting policy? Briefly describe the approach to repor...

A: If any indirect effects are recognized by a company due to any changes in the accounting policy, it ...

Q: The reported net incomes for the first 2 years of Sandra Gustafson Products, Inc., were as follows: ...

A: Following is the statement which will show the effect of rectification of errors on net earnings:

Q: PARRISH 3-3 CHART OF ACCOUNTS POSTING Would you please post the following events directly using the ...

A: Chart of accounts: The chart that lists all the account titles along with their corresponding number...

Q: What factors must be considered by the actuary in measuringthe amount of pension benefits under a de...

A: Actuarial valuation is the assessment of the pension plan as required stutorily wherein the liabilit...

Q: Why is it necessary to convert accrual-based net income to a cash basis when preparing a statement o...

A: Click to see the answer

Q: Lena Kay and Kathy Lauder have a patent on a new line of cosmetics. They need additional capital to ...

A: 1.Journalize the issuance of common stock to Kay and Lauder. 

Q: Under IFRS, changes in accounting policies are a. permitted if the change will result in a more reli...

A:  

Q: Determining paid-in capital for a corporation Aruba Corporation recently organized. The company issu...

A: Capital Stock of CorporationCapital stock is issued by the corporation to raise funds from the inves...

Q: Variance analysis, working backward. The Hiro Corporation sells two brands of wine glasses: Plain an...

A: 1.The sales quantity variance for each product

Q: Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2016....

A: Prepare amortization schedule for the lessee-Company EL.

Q: Journalizing a small stock dividend Element Water Sports has 13,000 shares of $1 par value common st...

A: Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. Th...

Q: Simmons Corporation owns stock of Armstrong, Inc. Prior to 2020, the investment was accounted for us...

A: The dividend revenue of $8,000 is obtained by multiplying the net income of $80,000 with the percent...

Q: How does the statement of cash flows help users of financial statements?

A: Cash flow statements are the statements that determines the inflow and outflow of cash from three ma...

Q: Determine the meaning of the following terms.(a) Contributory plan.(b) Vested benefits.(c) Retroacti...

A: Plan assets: Assets which are created, maintained and planned for a specific purpose or benefit is t...

Q: Identify the five components that comprise pensionexpense. Briefly explain the nature of each compon...

A: Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after ...

Q: Holder-Webb Company began operations on January 1, 2018, and uses the average-cost method of pricing...

A: Given Data:

Q: National Supply's shareholders' equity included the following accounts at December 31, 2015: ($ in m...

A: Compute the average paid in capital in excess of par:

Q: King Cones leased ice cream-making equipment from Ace Leasing. Ace earns interest under such arrange...

A: Short term lease: It  is a one type of lease which has maximum lease period of 1 year or less than o...

Q: Strategy, balanced scorecard, service company. Compton Associates is an architectural firm that has ...

A: a. The Compton Associates follow the Cost leadership strategy. The products are sold at a low cost t...

Q: Target prices, target costs, activity-based costing. Snappy Tiles is a small distributor of marble t...

A: 1.Calculate S's operating income for 2016.

Q: Strategic analysis of operating income (continuation of 12-21). Refer to Exercise 12-21. Calculate ...

A: 1. 

Q: Predetermined overhead rates and manufacturing overhead application (LO 4) Rector Company manufactur...

A: a) Predetermine overhead rate = $2,500,000/250,000 = $10 per labour hour.

Q: State how each of the following items is reflected in the financial statements. a.    Change from FI...

A: Hi, thankk you for the question. Since we only answer up to 3 sub-parts, we'll answer the first 3. P...

Q: Sheffield Inc. owns shares of Tamarisk Corporation stock. At December 31, 2020, the securities were ...

A: Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. Th...

Q: Parsons Inc. has proposed a change from one inventory accounting method to another for financial rep...

A: Accounting changes: Accounting changes can be defined as changes in accounting principles, accountin...

Q: What approaches have been suggested to overcome the seasonality problem related to interim reporting...

A: Interim report: When the financial results are published for the year shorter than the fiscal year, ...

Q: What is a private pension plan? How does a contributorypension plan differ from a noncontributory pl...

A: Pension: A fixed sum of money, receivable in future or after the age of retirement, which the benefi...

Q: Suppose Yummy Treats Bakery issues common stock in exchange for a building. Yummy Treats Bakery shou...

A: The correct answer is Option (c)

Q: Differentiate between the direct method and the indirect method by discussing each method.

A: Statement of cash flows: The statement of cash flows is a statement which includes all transactions ...

Q: Which of the following is false? a.    GAAP and IFRS have the same absolute standard regarding the r...

A: International Financial Reporting Standard (IFRS): An international standard for identifying, analyz...

Q: Bramble Inc. declared a cash dividend of $1.15 per share on its 4 million outstanding shares. The di...

A: Cash dividend: The amount of cash provided by a corporation out of its distributable profits to its ...

Q: Describing the purposes of the statement of cash flows Financial statements all have a goal. The sta...

A: Statement of cash flows: This statement reports all the cash transactions which are responsible for ...

Q: Which characteristic of a corporation is a disadvantage? Mutual agency Double taxation Limited liab...

A: Corporation: The form of business entity ,which is incorporated by state law into a separate legal e...

Q: What are the three relevant dates involving cash dividends? Describe each.

A: A dividend is a return received by shareholders of the company. The relevant dates involving cash di...

Q: Describe the five steps used to prepare the statement of cash flows by the indirect method.

A: Statement of cash flows: It is one of the financial statement that shows the cash and cash equivalen...

Q: prepare closing entry

A: Closing entries are those journal entries which are passed to transfer the balances of temporary acc...

Q: Analyzing and journalizing bond transactions On January 1, 2018, Electricians Credit Union (ECU) iss...

A: 1.

Q: What are the accounting problems related to the presentation of interim data?

A: Interim data is the data which covers a period less than the fiscal year.  The data is issued during...

Q: Lenexa State Bank has followed the practice of capitalizingcertain marketing costs and amortizing th...

A: Accounting policy: Accounting policy is a set of rules, regulations, principles and procedures follo...