70.2K

Verified Solution

Link Copied!

On Dec 31, 2016, Riyadh Company had accounts:

1. Credit sales                                                                          $2,500,000
2. Ending accounts receivable                                                      800,000
3. Salesdiscousnts                                                                        120,000
4. Sales returns andallowances                                                      280,000
5. Beginning accountsreceivable                                                750,000
6. Allowance for doubtful accounts(credit)                                    12,000           
7. The aging schedule (aging method) for the company’s accountsreceivable is shown in the following table:

# of Days Outstanding	Amounts	Estimated % Uncollectible
0-30	$     100,000	2%
31-60	300,000	4%
61-90	300,000	6%
Over 90	100,000	8%

Requirements:

1. If the compnay’s use the percentage of net credit sales method(3%) to estimate its allowance for the doubtful accounts, answerthe following two questions:

• What is the balance of the allowance for doubtful accounts onDec 31, 2016?
• What is the bad debt expense that should be reported in the2016 income statement?

2. If the compnay’s use the percentage of the aging method ofaccounts receivable to estimate its alloance for the doubtfulaccounts, what is the required balance for the the doubtfulaccounts on Dec 31, 2016?
   • What is the balance of the allowance for doubtful accounts onDec 31, 2016?
   • What is the bad debt expense that should be reported in the2016 income statement?