At the beginning of 2018, Brad’s Heating & Air (BHA) has
a balance of $26,000 in accounts receivable. Because BHA is a privately owned
company, the company has used only the direct write-off method to account for
uncollectible accounts. However, at the end of 2018, BHA wishes to obtain a
loan at the local bank, which requires the preparation of proper financial
statements. This means that BHA now will need to use the allowance method. The
following transactions occur during 2018 and 2019.
a. During 2018, install air conditioning systems on account, $190,000.
b. During 2018, collect $185,000 from customers on account.
c. At the end of 2018, estimate that uncollectible accounts
total 15% of ending accounts receivable.
d. In 2019, customers’ accounts totaling $8,000 are written
off as uncollectible.
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