Determine the amount of: the addition to Allowance for Doubtful Accounts the accounts written off for each of the four years. a) Advise Mindy Pulaski as to whether the estimate of ¼ of 1% of credit sales appears     reasonable b) Assume that after discussing (a) with Mindy Pulaski, she asked you what action might     be taken to determine what the balance of Allowance for Doubtful Accounts should be         at December 31, 20Y5, and what possible changes, if any, you might recomm

College Accounting, Chapters 1-27
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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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For several years, EquiPrime Co.'s sales have been on a "cash only" basis. On January 1, 20Y2, however, EquiPrime 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 ¼ 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:

Year

 

Credit Sales

 

Allowance for
Doubtful Accounts

20Y2

 

 

$12,500,000

 

 

 

$12,800

 

20Y3

 

 

12,600,000

 

 

 

23,000

 

20Y4

 

 

12,800,000

 

 

 

34,000

 

20Y5

 

 

13,000,000

 

 

 

49,000

 

Mandy Pulaski, president of EquiPrime Co., is concerned that the method used to account for and write off uncollectible receivables is unsatisfactory. She has asked for your advice in the analysis of past operations in this area and for recommendations for change.

Instructions:

  1. Determine the amount of:
    1. the addition to Allowance for Doubtful Accounts
    2. the accounts written off for each of the four years.
  2. a) Advise Mindy Pulaski as to whether the estimate of ¼ of 1% of credit sales appears

    reasonable

  1. b) Assume that after discussing (a) with Mindy Pulaski, she asked you what action might

    be taken to determine what the balance of Allowance for Doubtful Accounts should be    

    at December 31, 20Y5, and what possible changes, if any, you might recommend in

    accounting for uncollectible receivables. How would you respond?

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