Question

At January 1, 2016, Simpson Co. had a credit balance of $260,000 in its allowance for uncollectible accounts. Based on past experience, 2 percent of Simpson's credit sales have been uncollectible. During 2016, Simpson wrote off $325,000 of accounts receivable. Credit sales for 2016 were $9,000,000. In its December 31, 2016, balance sheet, what amount should Simpson report as allowance for uncollectible accounts?

a) $115,000
b) $180,000
c) $245,000
d) $440,000

Answer 1

To determine the amount to report as allowance for uncollectible accounts, we need to calculate the net realizable value of accounts receivable. Based on past experience, 2 percent of Simpson's credit sales were uncollectible. After calculating the uncollectible accounts and considering write offs, the allowance for uncollectible accounts should be reported as $115,000 on the balance sheet.

Step-by-step explanation:

To determine the amount that Simpson Company should report as allowance for uncollectible accounts on its December 31, 2016, balance sheet, we need to calculate the net realizable value of accounts receivable. First, we need to calculate the amount of uncollectible accounts based on past experience. Since 2 percent of Simpson's credit sales have been uncollectible, we can calculate this by multiplying the credit sales for 2016 by 2 percent:

2% * $9,000,000 = $180,000

Next, we need to calculate the ending balance of the allowance account. The beginning balance of the allowance for uncollectible accounts was $260,000, and $325,000 of accounts receivable were written off during 2016. Therefore, the ending balance can be calculated as follows:

Beginning balance + Additions - Write-offs = Ending balance

$260,000 + $180,000 - $325,000 = $115,000

Therefore, Simpson Company should report $115,000 as the allowance for uncollectible accounts on its December 31, 2016, balance sheet.