Montgomery manufacturing inc sells household appliances to

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Montgomery Manufacturing Inc. sells household appliances to specialty retail stores and large department store chains extending that 30 day credit terms to all of its customers. During 2012 Montgomery sales slowed considerably due mainly to competitive pressures faced by it smaller customers as they struggle to compete against online stores selling less-expensive products from lower-cost manufacturers. In preparation for Montgomery's December 31, 2012 year and, Sue, Montgomery'scontroller prepared an analysis estimating the collectibility of Montgomery's Accounts Receivable by age category. The results of series analysis along with the estimate is used in prior years are as follows; Age of account receivable. Sues analysis. Amount used in prior year 0-30 days past due.95. .98 31-60.88.90 61-90 .75.80 Grater than 90.10.15 As of December 31, 2012 in aging of Montgomery's accounts receivable resulted in the following.

Age of account receivable. Amount 0-30 days past due. $500,000 31-60. $ 240,000 61-90. $85,000 Grater than 90 days. $25,000 Total balance. $850,000 The balance of Montgomery's allowance for collectible accounts in 12/31/12 is $12,500 credit balance. Also in the last week of December 12 Montgomery was informed that one of its customers, acme housewares has filed for bankruptcy and it is very unlikely that Montgomery will collect it's Acme housewares account receivable. The amount of Acme household account receivable balance was $40,000 which resulted from a sale made to Acme on October 15, 2012. As of December 31, 2012 no adjustment has been made for the Acme housewares account. During the first week of January so met with Montgomery's cfo to inform him of the Acme warehouses information and to present her analysis regarding the probability of accounts receivable collections.

Jack argued that Montgomery needed every possible penny of earnings for 2012 and stated that consistently it would prohibit revising any estimates for the current year. Also he stated that nothing should be done regarding Acme warehouse is account until a final sentiment settlement of the acme of bankruptcy is made, which could take as long as 2 or three years. Requirements 1. Prepare the adjustment if any that sue should make for the Acme warehouses account in the year and adjusting entry to record bad debt expense. 2. If Sue decides not to follow the CFo guidelines regarding acne warehouse and the revision of the collectibility estimates, how will her calculation of bad debt expense differ from the CFOs? Be sure to specify the amount of the difference. 3. Regardless of your answers in 1 and 2 if Sue believes that the CFO guideline is incorrect how should she proceed? Should she record the adjustments as stated by the CFO or should she take another course of action? Explain your answer.

Reference no: EM13483168

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