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23 February, 05:43

As of January 1, 2021, Farley Co. had a credit balance of $522,000 in its allowance for uncollectible accounts. Based on experience, 3% of Farley's credit sales have been uncollectible. During 2021, Farley wrote off $634,000 of accounts receivable. Credit sales for 2021 were $18,900,000. In its December 31, 2021, balance sheet, what amount should Farley report as allowance for uncollectible accounts

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  1. 23 February, 05:56
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    ($455,000)

    Explanation:

    When sales are made on account, the entries required are;

    Debit Sales/Revenue

    Credit Accounts Receivables

    The company may then estimate that part of the receivables may be uncollectible. For this, entries required are;

    Debit Bad debts expense

    Credit Allowance for doubtful debt (B/s)

    When the amounts provided for becomes uncollectible, the entries then become

    Debit Allowances for doubtful debts

    Credit Accounts receivables

    to write off the amount from account receivables.

    Hence where 3% of Farley's credit sales have been uncollectible, this amounts to

    = 3% of $18,900,000

    = $567,000

    Considering the above entries

    Amount to be reported as allowance for uncollectible at 31 December, 2021

    = ($522,000) + $634,000 + ($567,000)

    = ($455,000)
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