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# Percent of revenue allowance method of accounting

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1. Determining account balance: percent of revenue allowance method of accounting for uncollectible accounts

The following information pertains to Leslie's Floor Store sales on account and accounts receivable

Accounts receivable balance, January 1, 2012: \$52,500
Allowance for doubtful accounts, January 1, 2012: 4,725
Sales on account, 2012: 925,000
Cost of goods sold, 2012: 615,000
Collections of accounts receivable, 2012: 835,000

After several collection attempts, Leslie's wrote off \$3,100 of accounts that could not be collected. Leslie estimates that bad debts expense will be 0.5 percent of sales on account.

Required:
A. Compute the following amounts. 1.) using the allowance method, the amount of uncollectable accounts expense for 2012.

2.) Net realizable value of receivables at the end of 2012.

B. Explain why the uncollectable accounts expense amount is different from the amount that was written off as uncollectible.

2. O' Brian service Company purchased a copier on January 1, 2012 for 17,000 and paid an additional \$200 for delivery chargers. The copier was estimated to have a life of four years or 800,000 copies. Salvages was estimated at \$1200. The copier produced 230,000 copies in 2012 and 250,000 copies in 2013.

Required
Compute the amount of depreciation expense for the copier for calendar years 2012 and 2013 using these methods:

a. Straight line
b. Units- of -production
c. Double- declining balance

#### Solution Summary

Solution discusses the percent of revenue allowance method of accounting for uncollectible accounts

\$2.19

## Puretz Consulting: Uncollectible accounts using percent of revenue allowance method

Survey of Accounting

Problem 5-17 Accounting for uncollectible accounts, two cycles, using the percent of revenue allowance method

The following transactions apply to Puretz Consulting for 2010, the first year of operation.

1. Recognized \$75,000 of service revenue earned on account.
2. Collected \$62,000 from accounts receivable.
3. Adjusted accounts to recognize uncollectible accounts expense. Puretz uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 2 percent of sales on account.

The following transactions apply to Puretz Consulting for 2011.
1. Recognized \$86,500 of service revenue on account.
2. Collected \$85,000 from accounts receivable.
3. Determined that \$1,120 of the accounts receivable were uncollectible and wrote them off.
4. Collected \$500 of an account that had been previously written off.
5. Paid \$52,600 cash for operating expenses.
6. Adjusted accounts to recognize uncollectible accounts expense for 2011. Puretz estimates that uncollectible accounts expense will be 1 percent of sales on account.

Required:

Complete all the following requirements for 2010 and 2011. Complete all requirements for 2010 prior to beginning the requirements for 2011.

a. Identify the type of each transaction (asset source, asset use, asset exchange, or claims
exchange).
b. Show the effect of each transaction on the elements of the financial statements, using a horizontal statements model like the one shown here. Use + for increase, - for decrease, and NA for not affected. Also, in the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The first transaction is entered as an example. (Hint: Closing entries do not affect the statements model.)
c. Organize the transaction data in accounts under an accounting equation.
d. Prepare the income statement, statement of changes in stockholders' equity, balance sheet, and statement of cash flows.

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