Custom Sportswear Company, Mayfair Gamer Software

1. The balances of selected accounts of Custom Sportswear Company on December 31, 2013, are given below. Credit sales totaled $39,100,000. The returns and allowances on these sales were $230,000.

Accounts Receivable $ 3,910,000

Allowance for Doubtful Accounts 6,500 (credit)

Total Sales 42,200,000

Total Sales Returns and Allowances 290,000

Instructions:

a. Compute the amount to be charged to Uncollectible Accounts Expense under each of the following different sets of assumptions. Round computations to nearest dollar.

i. Bad debt losses are estimated to be 0.34 percent of net credit sales.

ii. Experience has shown that about 2.8 percent of the accounts receivable are uncollectible.

b. Suppose that Allowance for Doubtful Accounts has a debit balance of $6,500 instead of a credit balance of that amount before adjustments, but all other account balances remain the same. Compute the amount to be charged to Uncollectible Accounts Expense under each of the assumptions listed in the first instruction.

2. Mayfair Gamer Software uses the direct charge-off method to account for uncollectible accounts expenses as they occur. Selected transactions for 2013 and 2014 follow. The accounts involved are

Accounts Receivable, Notes Receivable, and Uncollectible Accounts Expense.

2013

March 15: Tony Smith, a credit customer, dies owing the firm $5,000. The account is written off.

 April 22: Tom Greenberg, a credit customer who owes the firm $3,000, declares bankruptcy. The amount is considered uncollectible and written off.

 June 16: The executor of the estate of Tony Smith sends the firm $1,000 in partial settlement of the account written off on March 1 5. The cash obtained has already been recorded.

 July 13: The bankruptcy court sends the firm $2,200 in settlement of the account receivable of Tom Greenberg, which was written off on April 22. The cash obtained has already been recorded in the cash receipts journal.

 October 8: The account owed by a customer, Lisa Holmes, in the amount of $2,100 is determined worthless and is written off.

2014

February 12: Tom Greenberg pays the remainder of the account that had previously been written off. (See transactions of April 22 and July 1 3). The cash obtained has already been recorded in the cash receipts journal.

Instructions:

a. Record each transaction in general journal form.

b. When the worksheet is prepared at the end of 2013, what balance should be listed for Uncollectible Accounts Expense?