Barton Corporation uses the percent of receivables method. As of December 31, Year 1, prior to estimating uncollectible accounts expense, Barton's balance of accounts receivable was $68,900, the balance of allowance for doubtful accounts was $2,500, and total sales for Year 1 were $875,000. On December 31, Barton aged its receivables and determined the following:.
a)Barton will report a net realizable value of accounts receivable equal to $63,170 on its December 31, Year 1 balance sheet.b)Barton will report uncollectible accounts expense of $5,730 on its Year 1 income statement.c)The December 31 adjustment related to uncollectible accounts will increase total liabilities and decrease stockholders' equity by $3,230.d)The method Barton uses to account for uncollectible accounts is known as the balance sheet approach.e)Write-offs of uncollectible accounts in Year 2 will reduce Barton's net realizable value of receivables.

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b)False c)False d)True e)Fa)This is true. Adjusted balance in Allowance for Doubtful Accounts = ($29,500 × 1%)+ ($16,700 × 5%)+ ($11,000 × 10%)+ ($9,400 × 25%)+ ($2,300 × 50%)= $5,730; Net realizable value = Accounts receivable of $68,900 − Allowance of $5,730 = $63,170.b)This is false. $5,730 adjusted allowance − $2,500 unadjusted allowance = $3,230 uncollectible accounts expense.c)This is false. The allowance for doubtful accounts is a contra asset, not a liability. The adjustment will decrease assets (by increasing the allowance for doubtful accounts)and decrease stockholders' equity (retained earnings).d)This is true. Aging of receivables is known as the balance sheet approach because it uses a percentage of one balance sheet account (accounts receivable)to estimate another balance sheet account (allowance for doubtful accounts).e)This is false. Write−offs do not affect net realizable value when the allowance method is used because the write−off decreases both accounts receivable and allowance for doubtful accounts equally.

Barton Corporation Uses the Percent of Receivables Method