Georgia Company reported accounts receivable of $16.5 million at the end of its 2004 fiscal year. This amount was net of an allowance for doubtful accounts of $1,800,000. During 2005, Georgia sold $56.5 million of merchandise on credit. It collected $57.9 million from customers. Accounts valued at $1,980,000 were written off as uncollectible during 2005. Georgia’s management estimates that 10% of the year-end Accounts Receivable balance will be uncollectible.
Answer each of the following questions:
A. What amount will Georgia report for accounts receivable and the allowance for doubtful accounts at the end of 2005?
B. What is the Doubtful Accounts Expense for 2005?
C. How will the accounts receivable and allowance accounts be presented on the balance sheet? Show the balance sheet.
D. Why do companies record expenses for doubtful accounts based on estimates from receivables or sales during the prior year rather than recording the expenses when accounts are written off in a future period?
E. If estimated un-collectibles as a percentage of sales or receivables were to increase over several years, what information might this provide to decision makers?
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