The Femaware Company uses the allowance method to account forbad debts. At the beginning of year 1, the allowance account had acredit balance of $66,844. Credit sales for year 1 totaled$2,139,000 and the year end accounts receivable balance was$436,713. During this year, $65,061 in receivables were determinedto be uncollectible. Femaware anticipates that 4% of all creditsales will ultimately become uncollectible. The fiscal year ends onDecember 31.
Required:
1. Does this situation describe a loss contingency? Explain.
2. What is the bad debt expense that Femaware should report inits year 1 income statement?
3. Prepare the appropriate journal entry to record thecontingency.
4. What is the net realizable value (book value) Femaware shouldreport in its year 1 balance sheet?
