Question

As of January 1, 2018, Farley Co. had a credit balance of $526,000 in its allowance for uncollectible accounts. Based on experience, 3% of Farley's credit sales have been uncollectible. During 2018, Farley wrote off $637,000 of accounts receivable. Credit sales for 2018 were $19,800,000. In its December 31, 2018, balance sheet, what amount will Farley report as allowance for uncollectible accounts? A. $705,000. B. $483,000. C. $1,120,000. D. $594,000.

Answer 1

Answer:

The correct answer is B

Explanation:

The amount which will Farley report as an allowance for uncollectible accounts in the balance sheet is computed as:

Uncollectible amount from sales = Sales × Percentage of credit sales which is uncollectible

where

Sales is $19,800,000

Percentage of credit sales which is uncollectible is 3%

Putting the values above:

= $19,800,000 × 3%

= $5,94,000

Total uncollectible amount = Uncollectible amount from sales + Credit balance of uncollectible - Amount wrote off

= $5,94,000 + $526,000 - $637,000

= $11,20,000 - $637,000

= $483,000