Question 1 Orange Company has an operating cycle of less than one year...
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Orange Company has an operating cycle of less than one year and provides credit terms for all of its customers. On May the company factored, without recourse, some of its accounts receivable. On October Orange Company sold special order merchandise and received an interestbearing note due June Orange Company uses the allowance method to account for uncollectible accounts. During some accounts were written off as uncollectible, and other accounts previously written off as uncollectible were collected.
a Discuss how Orange Company should report the effects of the interestbearing note on its income statement for the year ended December and its December Statement of Financial Position.
b Discuss how Orange Company should account for the collection of the accounts previously written off as uncollectible.
c What are the two basic approaches to estimating uncollectible accounts under the allowance method and discuss? What is the rationale for each approach?
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