1. Nuance Company had net credit sales for the year of $500,000. Nuance estimates that 2 percent of its net credit sales will never be collected.
a. Prepare the entry to record Nuance’s bad debt expense for the year.
b. Nuance had accounts receivable of $100,000 at the end of the year. Show how the net
accounts receivable balance would be reported on the balance sheet. Assume that the allowance for doubtful accounts had a beginning balance of zero.
c. Why is A/R shown at net rather than just showing the full amount?
2. Assume that Nuance in number 1 above used the percentage of receivables method to estimate uncollectible accounts instead of the percentage of sales method. Nuance assumes that 5 percent of accounts receivable will never be collected.
a. Prepare the entry to record Nuance’s bad debt expense for the year.
b. Show how the net accounts receivable balance would be reported on the balance sheet.
c. Why are companies allowed to choose between methods of estimating bad debts instead of being required to use one method?