Assignment: Nature of Uncollectible Accounts
The XYZ Corporation owns and operates casinos. As of a recent year, The XYZ Corporation reported A claim against the customer created by selling merchandise or services on credit.accounts receivable of $383,000 and The contra asset account for accounts receivable.allowance for doubtful accounts of $50,173.
Patient Care manufactures and sells a wide range of health care products. As of a recent year, Patient Care reported accounts receivable of $862,000 and allowance for doubtful accounts of $43,962.
Round all amounts to one decimal place.
a. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for The XYZ Corporation.
b. Compute the percentage of the allowance for doubtful accounts to the accounts receivable for Patient Care.
c. Possible reasons for the difference in the two ratios computed in (a) and (b) include:
a. Casino operators historically lose money on operations.
b. Casino operators have larger accounts receivable.
c. Individuals who may have adequate creditworthiness could overextend themselves and lose more than they can afford if they get caught up in the excitement of gambling.
d. Casino operations experience greater bad debt risk, since it is difficult to control the creditworthiness of customers entering the casino.