Which option will be correct and why?
1. Running Treadmills Inc. is a specialty treadmill manufacturer that includes a 24-month
warranty on all treadmills that it sells. Running Treadmills sells the Extreme Climber for
$45,000. The fair value of the component parts is estimated to be $40,000 for the treadmill
and $10,000 for the warranty. Running Treadmills allocates revenues to the component
parts using the relative fair value method. Its policy is to recognize revenue from the sale of
warranties on a straight-line basis over the life of the warranty.
Assume an Extreme Climber is sold on December 1. What is the total revenue reported by
Running Treadmills in the month of December for this sale?
2. Rickard Manufacturing Inc. provides for doubtful accounts based on 3% of credit sales. The
following data are available for 20X5:
Total sales during 20X5 $4,000,000
Credit sales as a percentage of total sales 80%
Allowance for doubtful accounts January 1, 20X5 $60,000 CR
Collection of accounts written of in prior years $9,000
Customer accounts written off as uncollectible during 20X5 $35,000
What is the balance of the allowance for doubtful accounts for Rickard Manufacturing as at
December 31, 20X5?
3.Hopper Inc. follows the balance sheet approach in preparing its allowance for doubtful
accounts (AFDA). The opening AFDA balance as at January 1, 20X3, was a credit of
$8,700. During the 20X3 fiscal year, a total of $7,860 was written off as uncollectible for the
year and a total of $650 in previously written-off accounts was recovered.
Hopper has the following accounts receivable balances as at December 31, 20X3,
including a breakdown of the percentage estimated by management to be uncollectible:
Days outstanding Balance % estimated to be
0-30 days $480,520 0.5%
31-60 days 187,600 1.8%
61-90 days 77,250 2.5%
Greater than 91 days 38,760 4.5%
What is the total amount of bad debt expense that Hopper needs to record for the
December 31, 20X3, fiscal year? Round to the nearest dollar.