Gekko, inc. reported the following balances (after adjustment) at the end of 2008 and 2007.

12/31/2008 12/31/2007
total accounts receivable p105,000 p96,000
net accounts receivable 102,000 94,500

during 2008, gekko wrote off customer accounts totaling p3,200 and collected p800 on accounts written off in previous years. gekko's doubtful accounts expense for the year ending december 31, 2008 is

(a) p1,500.
(b) p2,400.
(c) p3,000.
(d) p3,900.

Correct answer is D, P3,900

Explanation:

Begging Allowance for doubtful account is P1,500 (96,000 - 94,500). Ending balance of Allowance for doubtful account is P3,000 (P108,000 -P105,000). We can now work back the provision for doubtful accounts that the company has made during 2008.

Beginning P1,500

Add:

Collection of written off accounts 800

Total P2,300

Less:

Written off 3,200

Total (P900)

Therefore, in order for the company to have an ending inventory of P3,000, They must have set up a provision for doubtful accounts in the amount of P3,900. Attached herewith is the T-account of allowance for doubtful accounts

urban company reports the following information regarding its production cost: units produced 37,000 units direct labor $ 30 per unit direct materials $ 35 per unit variable overhead $ 237,000 in total fixed overhead $ 127,000 in total