Problem:
The December 31, 2003 balance sheet of Pine Company had Accounts Receivable of $500,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2004, the following transactions occurred: sales on account $1,400,000; sales returns and allowances, $50,000; collections from customers, $1,250,000; accounts written off $35,000; previously written off accounts of $4,000 were collected.
INSTRUCTIONS
(a) Journalize the 2004 transactions.
(b) If the company uses the percentage of sales basis to estimate bad debts expense and anticipates 2% of net sales to be uncollectible, what is the adjusting entry at December 31, 2004?
(c) If the company uses the percentage of receivables basis to estimate bad debts expense and determines that uncollectible accounts are expected to be 4% of accounts receivable, what is the adjusting entry at December 31, 2004?
(d) Which basis would produce a higher net income for 2004 and by how much?