Reference no: EM132723738
The following information relates to iTimer Ltd. for the year ended December 31, 2016:
Sales for cash $800,000
Sales on account $13,200,000
Cash collections from sales on account $11,300,000
Sold some Accounts Receivable to a Factor, without recourse $600,000
Actual accounts receivable determined to be uncollectible and written off during the year $65,000
Accounts receivable, January 1, 2016 $1,500,000 (debit balance)
Allowance for doubtful accounts, January 1, 2016 $68,000 (credit balance)
Use the information provided above to answer the following questions (show your work).
Problem a. How much in total sales will iTimer Ltd. report for the year ended December 31, 2016.
Problem b. What is the amount of bad debts expense iTimer Ltd. will report for December 31, 2016 after an adjusting journal entry to record bad debts is made? Assume the allowance method is used and uncollectible accounts are estimated to be 0.75% of credit sales.
Problem c. What is the amount of bad debts expense iTimer will report for December 31, 2016 after an adjusting journal entry to record bad debts is made? Assume the allowance method is used and uncollectible accounts are estimated to be 2.5% of outstanding accounts receivable.
Problem d. Assume the direct write-off method is used to account for uncollectible accounts. How much bad debts expense will iTimer Ltd. be report for December 31, 2016?
Problem e. Refer to parts (b), (c), or (d) and comment on which method would achieve maximizing reported earnings. Would the method used be acceptable? Explain.