Final answer:
The auditor would expect the year-end balance in the accrued commissions payable account to be $528,000, after considering that 10% of the sales are not collected and 2% are returned, leading to effective net sales of $8.8 million.
Step-by-step explanation:
To calculate the year-end balance in the accrued commissions payable account, we first need to determine the effective net sales that commissions will be paid on. The company had $10 million in sales, but we need to account for sales that are likely not going to be collected and sales that are returned.
It's expected that 10% will not be collected and 2% will be returned, so the calculation for the effective net sales is $10 million - 10% of $10 million - 2% of $10 million. This equals $10 million - $1 million (uncollected sales) - $200,000 (returns), resulting in $8.8 million in sales that commission will be paid on.
The next step is to calculate the commission amount using the 6% commission rate. The accrued commission is 6% of $8.8 million, which equals $528,000. Therefore, the auditor would expect the year-end balance in the accrued commissions payable account to be $528,000.
The complete question is: A company sells a particular product only in the last month of its fiscal year. The company uses commission agents for such sales and pays them 6% of their net sales 30 days after the sales are made. The agents' sales were $10 million. Experience indicates that 10% of the sales are usually not collected and 2% are returned in the first month of the new year. The auditor would expect the year-end balance in the accrued commissions payable account to be is: