Question - Evaluate the following scenarios, assuming both companies use the net credit sales as the basis for estimating bad debts expense:
1. At year-end, Thompson Company has accounts receivable of $ 82,000. The allowance for uncollectible accounts has a balance prior to adjustment of $ (200). Net credit sales for the year were $ 275,000 and 3% is estimated to be uncollectible.
2. At year-end, Starges Company has accounts receivable of $ 85,000. The allowance for uncollectible accounts has a balance prior to adjustment of $ 300. Net credit sales for the year were $ 275,000 and 3% is estimated to be uncollectible.
Required:
For each situation described above, compute the following:
a. The bad debts expense for the year
b. The balance in the allowance for uncollectible accounts account at year-end
c. The net realizable value of accounts receivable at year-end
d. Assuming Thompson Company had an accounts receivable balance of $ 75,000 at the beginning of the year, what is Thompson's accounts receivable turnover ratio for the year?
e. Assuming Starges Company had an accounts receivable balance of $ 89,000 at the beginning of the year, what is Starges' accounts receivable turnover ratio for the year?