Barth Company, which has been in business for three years, makes all of its sales on credit and does not offer cash discounts. Its credit sales, customer collections, and write-offs of uncollectible accounts for its first three years follow: Year Sales Collections Accounts written off
2018 751000 733000 5300
2019 876000 864000 5800
2020 978000 932000 6500
a. Barth uses the allowance method of recognizing credit losses that provides for such losses at the rate of I% of sales. (This means the allowance account is increased by I% of credit sales regardless of any write-offs and unused balances.) What amounts for accounts receivable and the allowance for uncollectible accounts are reported on its balance sheet at the end of 2020? What total amount of bad debts expense appears on its income statement for each of the three years?
b. Comment on the appropriateness of the I% rate used to provide for bad debts based on your results in part a. (Hint: T-accounts can help with this analysis.)