question archive Fan-Tastic Sports Gear Inc
Fan-Tastic Sports Gear Inc
Subject:AccountingPrice:2.87 Bought7
Fan-Tastic Sports Gear Inc. recorded $3,100,000 of sales last year and projects sales to increase by $350,000 in the current year. Last year, 90% of sales were on account, with over 400 customer accounts. Bad debt expense was $26,187.
1. Assume that Fan-Tastic Sports Gear Inc. used the allowance method last year, and the allowance account at the end of the year had a debit balance of $2,190. The company estimated uncollectible accounts expense using the percent of credit sales method and expected 0.75% of credit sales to be uncollectible. What is the amount of the adjusting entry to provide for doubtful accounts on December 31? Round all computations to the nearest dollar. $
2. How much higher (lower) would Fan-Tastic Sports Gear Inc.’s net income have been under the allowance method assumption previously shown in (1) than under the direct write-off method? (Enter “0” if there is no change.) Higher by $
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Answer:
Solution 1:
Amount of the adjusting entry to provide for doubtful accounts on December 31 = Credit sales * 0.75%
= ($3,100,000*90%*0.75%) = $20,925
Solution 2:
Bad debts expense under direct write off method = $26,187
Fan-Tastic Sports Gear Inc.’s net income higher under allowance method by = $26,187 - $20,925 = $5,262
