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Clark Pierce conducts a wholesale merchandising business that sells approximately

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Question;Clark;Pierce conducts a wholesale merchandising business that sells;approximately 5,000 items per month with a total monthly average sales;value of $250,000. Its annual bad debt rate has been approximately 1?%;of sales. In recent discussions with his bookkeeper, Mr. Pierce has;become confused by all the alternatives apparently available in handling;the Allowance for Doubtful Accounts balance. The following information;has been presented to Pierce.1.An;allowance can be set up (a) on the basis of a percentage of sales or;(b) on the basis of a valuation of all past due or otherwise;questionable accounts receivable. Those considered uncollectible can be;charged to such allowance at the close of the accounting period, or;specific items can be charged off directly against (1) Gross Sales or to;(2) Bad Debt Expense in the year in which they are determined to be;uncollectible.2.Collection;agency and legal fees, and so on, incurred in connection with the;attempted recovery of bad debts can be charged to (a) Bad Debt Expense;(b) Allowance for Doubtful Accounts, (c) Legal Expense, or (d);Administrative Expense.3.Debts;previously written off in whole or in part but currently recovered can;be credited to (a) Other Revenue, (b) Bad Debt Expense, or (c) Allowance;for Doubtful Accounts.InstructionsWhich;of the foregoing methods would you recommend to Mr. Pierce in regard to;(1) allowances and charge-offs, (2) collection expenses, and (3);recoveries? State briefly and clearly the reasons supporting your;recommendations.

 

Paper#39193 | Written in 18-Jul-2015

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