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Milford Company uses the​ percent-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $ 140 comma 000​, and management estimates 2​% will be uncollectible. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $ 3 comma 000. The amount of expense to report on the income statement will be?

Respuesta :

Answer:

Amount of expense to be reported in income statement = 0

Amount of income because of reverse of extra balance = $200

Explanation:

Since the Allowance for Uncollected Accounts is @2% based on percent of sales method, closing balance shall be 2% of credit sales of current year.

Now provided current year credit sales = $140,000

Therefore  Allowance for Uncollected Accounts = $140,000 X 2% = $2,800

Provided existing balance of  Allowance for Uncollected Accounts = $3,000, Therefore it is already in excess of requirement by $200 that is $3000 - $2800 therefore it shall be reversed by $200.

Amount of expense to be reported in income statement = 0

Amount of income because of reverse of extra balance = $200