During its first year of operations, which ended on December 31, 2011, Fort Nelson Resources Ltd. determined that customers owing the company $12,000 would not be able to pay and wrote off these accounts. By the end of the year, the company had $1.7 million of and estimated that 10% of these were doubtful of collection. In 2012, the company wrote off amounting to $14,000. By December 31, 2012, the company had of $2.1 million and estimated doubtful accounts at 10% of outstanding accounts receivable.
Instructions
(a) Prepare the journal entries that Fort Nelson Resources would record in 2011.
(b) Prepare the journal entries that Fort Nelson Resources would record in 2012.
(c) Assess whether the company’s policy of estimating doubtful accounts at 10% of outstanding receivables is appropriate.
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