At a January 20X2 meeting, the presiÂ¬dent of Sonic Sound
directed the sales staff â€œto move some product this year.â€ The president noted
that the credit evaluation department was being disbanded beÂ¬cause it had
restricted the companyâ€™s growth. Credit decisions would now be made by the
By the end of the year, Sonic had generated significant
gains in sales, and the president was very pleased. The following data were
provided by the accounting department:
Sales $23,987,000 $8,423,000
Accounts Receivable, 12/31 12,444,000 1,056,000
Allowance for Uncollectible Accounts, 12/31 ? 23,000 cr.
The $12,444,000 receivables balance was aged as follows:
Age of Receivable Amount Percentage of Accounts Expected to
Under 31 days $4,321,000 99%
31260 days 4,890,000 90
61290 days 1,067,000 80
Over 90 days 2,166,000 60
Assume that no accounts were written off during 20X2.
a. Estimate the amount of Uncollectible Accounts as of
December 31, 20X2.
b. What is the companyâ€™s Uncollectible Accounts expense for
c. Compute the net realizable value of Accounts Receivable at
the end of 20X1 and 20X2.
d. Compute the net realizable value at the end of 20X1 and
20X2 as a percentage of respective year-end receivables balances. Analyze your
findings and comment on the presidentâ€™s decision to close the credit evaluation