Account Receivable Entries
The following financial information pertains to Sleepy Company:
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Accounts receivable, 12/31/09
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$275,000
|
|
Allowance for bad debts, 12/31/09
|
8,400
|
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Net credit sales, 2010
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1,980,000
|
|
Collections on credit sales during 2010
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1,730,000
|
|
Accounts receivable written off in 2010
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6,500
|
Required
a. Prepare all the necessary journal entries for 2010 sales, collections, and write-offs (using the direct write-off method).
b. Prepare 2010 journal entries to record write-offs and to estimate bad debt expense assuming bad debt expense is estimated on a (i) percentage of net credit sales basis (2%) and (ii) percentage of accounts receivable basis (5%).
c. What is the net realizable value of accounts receivable in parts b(i) and b(ii)?
d. Explain the rationale for each of the methods in part b.