The accounting records of 10Com Ltd. show the following for 2021:

\begin{array} { | l | r | } \hline \text { Accounts receivable, Jan. 1, 2021 } & \$ 55,000 \\\hline \text { Accounts receivable, Dec. 31, } 2021 & 85,000 \\\hline \text { Allowarce for doubtful accounts, Jan. 1, 2021 } & 6,300 \\\hline \text { tad debt expense before year end adjusting or closing entries, Dec 31, 2021 } & 3,400 \mathrm { Dr } * \\\hline \text { Fustomer accounts written off as uncollectable during 2021 } & 5,550 ^ { * } \\\hline\end{array}

*The credit side of the journal entry (or entries)related to this amount went to allowance for doubtful accounts.
** Account write-offs were debited to the allowance for doubtful accounts.
More Info
For 2021, cash sales were $970,000, while credit sales were $720,000. Recently, 10Com's management has become concerned about various estimates used in its accounting system, including those relating to receivables and uncollectable accounts. The company is considering two alternatives.
For the purpose of comparing these two alternatives, the company has made the following estimates for each alternative.
•Alternative 1: Bad debts approximating 0.7% of credit sales.
•Alternative 2: Aging of the accounts receivable at the end of the period, where 80% would incur a 2% loss, while the remaining 20% would incur a 9% loss.
Required:
For each of the two alternatives listed above, calculate the bad debts expense for 2021 and the allowance for doubtful accounts balance at the end of 2021.

Which Statement Is Correct

Multiple Choice

Correct Answer:VerifiedUnlock this answer nowGet Access to more Verified Answers free of chargeAccess For Free

Correct Answer:
Verified
Unlock this answer now
Get Access to more Verified Answers free of charge